Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
A portion of a company’s profits paid out to shareholders, usually quarterly, as cash or additional shares.
Definition: A portion of a company’s profits paid out to shareholders, usually quarterly, as cash or additional shares.
A dividend is a reward companies pay to shareholders out of earnings. Mature, profitable companies (think Coca-Cola or Johnson & Johnson) tend to pay steady dividends, while fast-growing companies often reinvest profits instead. Reinvesting dividends to buy more shares is one of the most reliable ways to compound returns over decades.
Dividend yield = annual dividends per share ÷ share price × 100.
If you own 100 shares of a stock trading at $50 that pays a $2 annual dividend, you receive $200 per year, for a 4% yield. Reinvested, those payments buy more shares that then pay their own dividends.
Put this concept to work with our free Dividend Calculator.
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