What is a Dividend?

A Simple Explanation

Whether you are just starting to invest or have been investing for decades,

dividends can be a valuable part  of anyone’s investing portfolio.

As with any part of investing, you should first understand what  it is you’re  investing in.

Below is a guide to help you get started.

What is a Dividend?

Generally speaking, a dividend is a distribution of a portion of a company’s earnings paid to the shareholders.

Let’s use a basic example of how a dividend might work. Company X has a share price of $100,

and you own 100 shares. Company X announces they will pay a $1.50 dividend per share on the next payment date.

By paying a dividend, they attract investors creating more demand for their stock.

So why would a company want to pay out some of its profits? The simple answer is to attract more investors.

Many companies won’t pay dividends for several reasons, the biggest being  it hurts their  bottom line.

Why Companies Don’t Pay Dividends

Usually, companies just starting up are more mindful of their cash flow.

For one, having less cash means less money to grow the business in countless ways.

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