Dividend

A dividend is a cash payment — occasionally paid in additional shares instead — that a company distributes to its shareholders out of its profits, most commonly on a quarterly schedule.

The decision sits with the board of directors, who declare a dividend of a specific amount per share and set three key dates: the declaration date, the ex-dividend date (the cutoff — buy the stock on or after this date and you don't get the upcoming payment), and the payment date, when the cash actually arrives in shareholders' accounts.

Why some companies pay and others don't

Mature, cash-generative businesses with fewer places to productively reinvest their profits — utilities, established consumer brands, many banks — tend to return a portion of earnings to shareholders as dividends. Younger or fast-growing companies more often keep every dollar in the business, on the theory that reinvesting in growth will create more value than handing the cash back. Neither approach is inherently superior; it depends on whether the company actually has good uses for the money.

What a dividend is, and isn't

A dividend is a real cash return, but it isn't free money conjured from nowhere. On the ex-dividend date, a stock's price typically drops by roughly the amount of the dividend, because the company's cash — and therefore its value — just went down by that amount. You're not getting richer on the day you're paid a dividend; you're getting the same value in a different form, part cash and part remaining share price.