Dividend

A payment made by a company to its shareholders from its profits.

What Is a Dividend?

A dividend is a cash payment that a company distributes to its shareholders, typically on a quarterly basis. It represents a direct share of the company's profits returned to the people who own its stock.

How Dividends Work

When a company earns profits, its board of directors can choose to reinvest them back into the business or distribute some portion to shareholders as dividends. Key dates to know:

• Declaration date: When the board announces the dividend amount.
• Ex-dividend date: The cutoff date — you must own the stock before this date to receive the dividend.
• Record date: The company checks its records to see who owns shares.
• Payment date: When the cash actually hits your account.

Dividends and Stock Prices

On the ex-dividend date, the stock price typically drops by roughly the dividend amount, since new buyers won't receive that payment. Over time, consistent dividends can represent a significant portion of total investment returns — historically about 40% of S&P 500 total returns have come from dividends.