what are dividends

Dividends are payments made by a corporation to its shareholders as a distribution of profits. When a corporation earns a profit or surplus, it can pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be retained earnings for the company. Dividends are allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding. Dividends can provide stable income and raise morale among shareholders. Companies may still make dividend payments even when they don’t make suitable profits to maintain their established track record of distributions. Dividends are considered an indication of a companys financial well-being, and once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times. Dividends are often distributed to shareholders quarterly, though some companies may pay dividends less frequently. There are two types of dividends: cash dividends and stock dividends. Cash dividends are the most common form of payment and are paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income of the shareholder, usually treated as earned in the year they are paid (and not necessarily in the year a dividend was declared) . Stock dividends are those paid out in the form of additional shares of stock rather than cash. All types of dividends are taxable.