A dividend is a portion of a company’s profit paid to common and preferred shareholders. They provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.
How do Dividends Work?
Dividends are payments a company makes to its shareholders to share its earnings and can be thought of as rewards paid to shareholders for their investments. There are many reasons why companies pay dividends, including the intent to increase investors’ faith in the company and signal optimism about future growth and earnings.
Dividends are paid according to the number of shares an investor owns. For example, if you own 30 shares and the company is paying $2 per share, you will get a dividend of $60.
What Are The Different Types of Dividends?
Common types of dividends include:
- Cash Dividends
- Stock Dividends
- Dividend Reinvestment Programs (DRIPs)
- Special Dividends
- Preferred Dividends