Dividends

A dividend is a portion of a company profits paid out to shareholders, usually in cash and typically every quarter. Mature, profitable companies often pay dividends to reward owners, while younger growth companies tend to reinvest profits instead. Dividends provide a stream of income on top of any gains from a rising share price.

Income-focused investors use dividends for steady cash flow, often reinvesting them to compound returns over time. Check the dividend yield and the payout ratio to judge whether a dividend is attractive and sustainable. Be cautious of unusually high yields, which can signal a falling share price or a payout the company cannot maintain.

If you own 200 shares of a company that pays a 1.50 dollar annual dividend per share, you receive 300 dollars per year. Reinvesting that cash to buy more shares lets future dividends grow, creating a compounding effect over the years.