A dividend is a distribution of profits of a corporation to its shareholders. A dividend is paid as an amount per share of stock the shareholder owns. Corporations typically pay dividends quarterly. The dividend is paid to shareholders according to the shares they own on a specific date.
Corporate profits (net income) are either retained by the corporation as retained earnings or paid out to shareholders in the form of dividends. Growing companies typically do not pay dividends, but instead prefer to retain their earnings for growth. Older, more established companies retain a portion of net income for growth and pay out the rest as dividends. Some companies, like General Electric, have paid dividends to shareholders without fail every quarter for many years.
Common Types of Dividends
The most common types of dividends are:
- Cash dividends, described above, which are paid by check or into a brokerage account.
- Stock dividends, which are additional shares of stock issued to shareholders as a percentage of their shares.
