Dividends are attractive to many investors, and they are especially useful to people such as retirees who are looking for regular income. Some stocks pay dividends while others do not, and the size of the dividend varies by stock.
Definition
A dividend is a regular payment that a company issues to shareholders. Most companies pay dividends in cash on a quarterly basis. Dividends are often expressed as a percentage of share value.
Concept of Dividends
Companies pay dividends as a way to share profits with shareholders. As such, dividends provide shareholders with a regular return on their investment in addition to any potential gains achieved from a rising share price. Also, companies may adjust dividend payments to reflect changes in earnings.
Reasons for Paying DIvidends
As a company expands and saturates a market, the growth rate of the company inevitably slows. Paying dividends is a method of keeping shares attractive to investors when large growth does not occur. Dividend-paying stocks also are attractive to people trying to generate a steady income from their investments.
Dividend Yield
As previously mentioned, dividends are expressed as a percentage of share value, but are often paid in quarterly installments. This may cause confusion for investors who are not familiar with dividends. For example, if a stock pays a 4 percent dividend in quarterly payments, each payment represents 1 percent of the share value.
