What is a Dividend?
A is a portion of a company's profits paid out directly to its . It is one of the two main ways you can make money from owning . The other being an increase in the share price itself.
How do work?
When a company generates profit, it has a choice. It can reinvest that money into the business to fund growth, or it can return some of it to as a . Companies that pay typically do so on a regular schedule, quarterly or annually. The amount is expressed either as a fixed sum per share or as a yield, which is the as a percentage of the share price.
Which companies pay ?
Established, profitable companies with stable tend to pay . Banks, utilities, consumer goods companies, and large are common examples. Companies growing quickly, particularly in technology, often reinvest all their profits rather than paying , preferring to use the money to fund expansion.
How are reinvested?
Many offer a option, often called . Instead of receiving your as cash, it is automatically used to buy more shares of the same company or fund. Over time this accelerates the of your investment significantly.
Are guaranteed?
No. A company can reduce or eliminate its at any time, particularly during periods of financial difficulty. A high can sometimes be a warning sign rather than an attraction. It may indicate the market expects the to be cut, or that the share price has fallen sharply for a reason.