• September 2019
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Dividend

A dividend is a distribution of part of a company’s earnings to a class of shareholders made in cash or as shares of stock or other property. Dividends are managed by a company’s Board of Directors. They can choose to when to issue dividends and how much should be paid out. Dividends are typically monthly or quarterly, but are also commonly issued individually or simultaneously with a scheduled dividend.

Net profits are used to determine a dividend. They can be distributed to shareholders via a dividend, or kept within the company as retained earnings. Net profits can also be used for a company to buy back its own shares in the open market. However, neither dividends nor share buybacks change the actual value of your shares. Dividend payments have to be OKed by your shareholders.

For start-ups, dividends are rare but still worth knowing about. Because startups often report losses in their early years, most profits have to be reinvested to help the company grow. Larger companies with predictable profits are often the best dividend payers. These companies are known to issue regular dividends to make their shareholders rich, rich rich. Some of the companies with the highest dividend payments are oil and gas companies, banks, healthcare and pharmaceuticals, and utilities. However, a company that usually issues dividend payments that suddenly stops can be a big UH OH signal to investors.

EXAMPLE:

I put my money into this company that pays dividends like crazy. It’s sweet!