Have you ever heard someone justify an action because it will “pay dividends”? What they really mean is that their action will cause good results for them in the future. In the financial world, dividends are a bit different.
So What is a Dividend, Exactly?
A dividend is when a company distributes a small portion of their earnings to shareholders. Dividends are usually cash payments and happen a few times a year to reward people who buy their stock and increase the stock’s value and attractiveness in the marketplace.
Not all companies issue dividends. In fact, its typically older companies that have matured that give out regular dividends. Newer companies usually choose to retain their earnings and focus on growth rather than pay out dividends to shareholders. To learn more about dividends, head over to Wall Street Survivor.