Investing terms are important to understand if you want to get involved in the markets. A full understanding of them will help you make better choices when it comes to how you are investing your hard earned funds.
One of the terms that you should know is something called a “dividend”.
What Is A Dividend?
A dividend is money paid out to shareholders who hold shares of the company through the ex-dividend date as a way of sharing the company’s success. The companies themselves determine if they will or will not pay a dividend and how much that dividend will be.
It is a payout that comes off the top of the profits that the company makes in a given year. The information for how much the dividend is for a given company is easy enough to find on a variety of financial news websites.
Simply look up the stock symbol of the company you are interested in and find the category that says “dividend”. It will show a number for how much of an annual dividend the company pays out on an annual basis.
If a company has a stock that is trading at $20 per share and has a dividend of $0.20 based on their earnings per share, then the yield on that dividend is 1%. That is to say that the company pays out 1% annually to shareholders just for holding the stock.
The investor then has the option to either reinvest the dividends or have them paid out directly.
The dividends are paid out on a quarterly basis regardless of if the investor has them reinvested or if they have them paid out directly. It is a nice little bonus for those who hold the stock of a company that pays these dividends.
Who Pays A Dividend?
Most companies that pay out dividends are larger companies that have a lot of profit and not enough things to do with those profits. They instead decide to pay out some of those profits in the form of dividends.
Some of the largest companies in the world have been doing this for many decades and have had ever increasing dividends throughout those years.
Therefore, those who hold on for a very long time can be rewarded very richly just from the dividends alone.