What Is a Dividend?

A dividend is a portion of a company's profits paid out to its shareholders, usually as cash and usually on a regular schedule. If you own shares in a company that pays one, you receive a small payment for each share you hold. This is educational, not financial or investment advice.

How dividends work

A company that makes a profit can either reinvest it in the business or return some to shareholders as a dividend. Established, steady companies are the most likely to pay them; you receive a set amount per share, so more shares means a larger total payment.

The key dates

What dividend yield means

Dividend yield is the annual dividend as a percentage of the share price. A $2 yearly dividend on a $100 share is a 2 percent yield. It lets you compare income across companies, but a very high yield can be a warning sign rather than a bargain, since it often means the share price has fallen.

Reinvesting dividends

Instead of taking the cash, many investors reinvest dividends to buy more shares, which then pay their own dividends. That feeds compound growth over long periods.

Not every company pays one

Fast-growing companies often pay no dividend at all, choosing to reinvest every dollar to grow faster. That is a normal strategy, not a flaw. Dividends are also not guaranteed — a company can reduce or cancel them if profits fall.

Takeaway

A dividend is a share of company profit paid to shareholders, measured against the price as a yield. Reinvesting dividends compounds your holdings over time, but remember they are optional for the company and never guaranteed.

Educational only — not financial or investment advice; investing carries a real risk of loss.