Dividend

Definition

A dividend is a payment made by a corporation to its shareholders, usually in the form of cash or additional stock. Dividends are typically derived from the company's profits and are distributed periodically.

5 Must Know Facts For Your Next Test

1. Dividends can be issued as cash payments or additional shares of stock.
2. The dividend yield is calculated by dividing the annual dividends per share by the stock's price per share.
3. Companies are not obligated to pay dividends; it is at their discretion based on profitability and strategic considerations.
4. Ex-dividend date is the cutoff date to determine which shareholders are eligible to receive the declared dividend.
5. High dividend payout ratios might indicate a mature company, whereas low ratios could suggest reinvestment into growth opportunities.

Review Questions

• What are two common forms in which dividends may be paid?
• How is the dividend yield calculated?
• What significance does the ex-dividend date hold for shareholders?

Related terms

Dividend Yield:

The ratio of annual dividends per share to the stock's price per share, expressed as a percentage.

Ex-Dividend Date: The date on which a stock starts trading without the value of its next dividend payment.

Payout Ratio: The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.