A dividend is a portion of a company’s profits paid out to shareholders — usually in cash, sometimes as extra shares (bonus shares).
Key terms
- Dividend yield: annual dividend ÷ share price, as a %.
- Payout ratio: the share of profit paid as dividends.
- Ex-dividend date: buy before it to receive the dividend.
Key idea: A very high yield can be a warning sign — it sometimes means the price has fallen because the market doubts the dividend is sustainable.
Pros and cons
Pros: regular income, tends to favour stable profitable companies, and reinvested dividends compound. Cons: dividends can be cut, and high-growth companies often pay none because they reinvest profits.
Key takeaways
- Dividends share company profits with shareholders.
- Yield = dividend ÷ price; watch the payout ratio.
- Reinvested dividends compound powerfully.
- Beware unusually high yields — they can signal trouble.
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