What is Dividend?

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.

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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:

  1. By selling the stock at a higher price than you bought it for, and
  2. 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?

Dividend from Stocks
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