Definition
A dividend is a distribution of a portion of a company's earnings to its shareholders, typically paid quarterly. Dividends are usually paid in cash but can also be distributed as additional shares. Companies that pay dividends are often established, profitable businesses that generate consistent cash flow. Dividend-paying stocks are popular among investors seeking regular income, particularly retirees or those looking for passive income.
Formula
The dividend yield shows the percentage return an investor receives from dividends relative to the stock price.
Example
Dividend Income Example
If you own 100 shares of a stock trading at $50 per share that pays a $2 annual dividend per share, you would receive $200 in dividend payments each year. The dividend yield would be 4% ($2 ÷ $50). If the company increases its dividend to $2.50, your annual income rises to $250, demonstrating the power of dividend growth investing.