What are dividends?

What are dividends?

Dividends are a portion of a company's profits that are paid out to its shareholders. When a company makes a profit, it has two choices: it can either reinvest those earnings back into the business or distribute them to shareholders as dividends. The amount of dividends paid out per share is known as the dividend yield, which is calculated by dividing the annual dividend per share by the share price.

How Dividends Work

  1. Generating Profits: The company earns profits and accumulates retained earnings.
  2. Deciding on Dividends: The management team decides to pay out some of these excess profits to shareholders instead of reinvesting them back into the business.
  3. Board Approval: The Board of Directors approves the dividend payment plan.
  4. Announcement: The company announces the dividend details, including the value per share, the payment date, and the record date.
  5. Payment: The dividend is paid to shareholders on the specified payment date.

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