What is a dividend?

By Yolander Prinzel AAA
A:

When a company makes a profit and decides not to reinvest the profit in the business, it can pay out a portion to each of its shareholders. This is called a dividend. When a company decides to pay out a dividend, it will announce it to the shareholders on a date called the declaration date. Investors are required to have owned the stock by a certain date (called the record date) in order to receive a portion. On the payment date, the company will generally issue either stock or cash to its shareholders.

The amount each shareholder receives depends on the amount of shares he or she owns. For example, if the dividend is 15 cents per share and you own 50 shares, your portion of the overall dividend paid will be $7.50. If the company is paying the dividend in shares, the corporation will generally determine what fractional percentage of a full share each owned share entitles stockholders to. For example, a company may decide that the dividend is one tenth of a share for every share stockholders own. If you own 100 shares it means you'll end up with 10 full shares as your dividend.

A stockholder doesn't need to do anything to get her dividend. It will be added to her brokerage or retirement account in the format dictated by the issuing corporation. If the stockholder has a reinvestment directive, then cash dividends will likely immediately purchase new shares. Otherwise, the cash might sit in the sweep account until it's invested. Cash dividends are taxed, so the investor should expect to receive a 1099-DIV at year's end.

RELATED FAQS

  1. What does dividend per share tell investors?

    Learn what dividend per share is, what it means to an investor, and what an increase in it can signal to investors.
  2. What causes dividends per share to increase?

    Learn what the major factors are that can lead to changes in a company's dividend payouts and drive increases in dividends ...
  3. What are some ways to increase your disposable income?

    Learn what disposable income is and how you can increase your disposable income by working a second job, starting a small ...
  4. What are the main advantages of fixed income securities?

    Learn why the addition of fixed income securities are common among investors who are attempting to limit their exposure to ...
RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...
  3. Policyholder Dividend Ratio

    The policyholder dividend ratio is a measurement of the profitability ...
  4. Paid-Up Additional Insurance

    Additional whole life insurance that a policyholder purchases ...
  5. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    Should the YYY ETF Be on Your Radar?

  2. Stock Analysis

    Is This Dividend Stock A Value Or Value ...

  3. Stock Analysis

    Is Intel's Newly Raised Dividend At ...

  4. Stock Analysis

    Is This High-Yielding Dividend Stock ...

  5. Stock Analysis

    Frontier Communications: Have Shorts ...

Trading Center