Dividend

Definition

A dividend is when a profitable company shares some earnings with people who own its stock. Companies choose to pay dividends quarterly, and the amount per share is typically a small percentage of the stock price. Not all stocks pay dividends; growth-focused companies reinvest all profits. Dividend-paying stocks tend to be more established, stable companies.

Why it matters

Dividends provide steady income from your investments without needing to sell shares. If you own a $100 stock paying a $2 annual dividend, that's 2% income just for holding it. In a 4% return year where the stock also appreciates, you're getting closer to 6% total. Reinvesting dividends (buying more shares with the payout) can turbocharge long-term growth through compounding, even though it's easy to ignore small quarterly payments.

Quick example

You own 200 shares of a dividend stock that pays $0.50 per quarter. Each quarter, you receive $100 (200 shares x $0.50). Annually, that's $400 in income just from owning the stock. If you reinvest that $400 to buy more shares, next year's dividend is even higher.

The bottom line

Knowing what Dividend means helps you make better day-to-day money decisions. It makes rates, account options, and tradeoffs easier to compare.