what is dividend

A dividend is a distribution of profits made by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be retained earnings, which can be used for the companys ongoing and future business activities. Dividends can be allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding. Dividends can be paid out as cash or in the form of reinvestment in additional stock. 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. Dividends are considered an indication of a company's financial well-being, and once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times. Dividends can provide stable income and raise morale among shareholders. The dividend yield is the dividend per share and is expressed as dividend/price as a percentage of a company's share price. Common shareholders of dividend-paying companies are eligible to receive a distribution as long as they own the stock before the ex-dividend date.