A dividend refers to the payment shareholders receive from a corporation that they own stock in. Dividends are a portion of a company’s profits. Not all corporations give out dividends to shareholders. Depending on the decision of the board, or the nature of the stock, a corporation may opt to use the money to re-invest in the activities of the business instead.
Some investors choose stocks based on whether or not they pay out dividends. With dividends, the investor will get his investment back in concrete terms. On the other hand, some investors shy away from dividends because they prefer the money to be used to make the corporation more stable.
Some corporations also offer a dividend reinvestment program. This is an alternative to merely receiving the money. Under this program, the investor may opt to use the money from the dividend to purchase more stocks. By doing so, the investor can increase his stock holdings and profits in the long run.
How are dividends paid out? In general, a fixed amount of money is given per share. Hence, if a person has more than one share, his dividend gets multiplied by the number of his shares. Other entities, such as cooperatives, pay out dividends depending on the activity of the member (where shares do not apply).