dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Example
“The company paid a quarterly dividend of $0.50 per share.”
Memory Tip
DIVID-end — at the END, profits get DIVIDED among shareholders.
Why It Matters
Dividends provide a return on investment that does not require selling shares which is critical for retirees and income investors who need regular cash flow. Historically dividends have accounted for roughly 40% of total stock market returns. Companies that consistently grow dividends tend to be financially stable.
Common Misconception
Many investors pursue high dividend yields without understanding the risks. An unusually high dividend yield of 8-10% when the market average is 2% is often a warning sign. It may indicate the stock price has fallen sharply or that the dividend is unsustainable and about to be cut.
In Practice
The S&P 500 Dividend Aristocrats are companies that have increased their dividend every year for 25 or more consecutive years including Coca-Cola Johnson and Johnson and Procter and Gamble. An investor who bought these stocks 20 years ago and reinvested dividends would have significantly outperformed the broader market.
Etymology
From Latin 'dividendum' meaning 'thing to be divided' — profits divided among shareholders.
Common Misspellings
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See Also
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