Written by Dividends are payments made by a company to its shareholders, typically from profits. Not all companies pay dividends, but many established companies do, especially in sectors like utilities and consumer staples. Dividends are typically paid quarterly, though some companies may pay them annually or semi-annually.
Dividends work by providing investors with a regular income stream in addition to any capital gains that may come from the appreciation of the stock’s price. For example, if you own 100 shares of a dividend-paying stock that pays $1 per share annually, you would receive $100 in dividend income each year. Some investors choose to reinvest their dividends (via a Dividend Reinvestment Plan, or DRIP) to purchase more shares of the stock, compounding their returns over time.
Dividends are particularly attractive to income-focused investors, such as retirees, who rely on dividends as a source of regular income.
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