Howdy Wall Street Willy. We talked about EPS, or Earnings Per Share, a little while back. And then you told me about Dividends. But what is a dividend anyway?
Dividend is the portion of a company’s profit that is distributed to stockholders. That’s what you receive if you own stock in the company.
Well, can you give me an example of that?
Sure, if you own 5 stocks in the company, and the dividend is 30 cents per share, then you would receive 5 times 30 cents, or $1.50 as the dividend.
So, the higher the dividend, the better it is?
Generally speaking, yes, because it means the company is making a good profit.
But at times, a company can also pay a dividend if it is not making a profit, or if it is making less profit than is shown by the dividend. They can pay this extra dividend from the money saved up from previous years – called reserve.
Well, how is a dividend even important?
You can earn from stocks in 2 ways:
- By selling the stock at a higher price than you bought it for, and
- From dividends
So, since dividend is one way to make money from stocks, it is important.
So a company that is doing well and pays out dividends consistently can be a good investment if you’re looking for a steady income instead of the stock price increasing.
Thank you very much for telling me about a dividend Wall Street Willy
You’re welcome, Sooper Cooper. Remember, finance is your friend!
Podcast: What is Dividend?
Everything you need to know about dividends from stocks: what is a dividend, is a higher dividend always better, why is dividend important, and more.
Show notes and transcript at: What is Dividend?