• Dividends may be paid in the form of cash or stock. Generally a growth company pays out no more than 50% of its earnings in dividends to shareholders. When a company has been growing rapidly over several years, it is likely to pay a modest dividend so that it can reinvest earnings in the business. In this way it will build value over the long term.
Dividends are paid to two kinds of shareholders. Preferred dividends are paid at a specified rate to shareholders who have purchased preferred shares. Should the company be in financial difficulty, the preferred shareholders would receive their due before the common shareholders.
Common shareholders may or may not receive a dividend. It depends upon the wishes of the Board of Directors. If a company has a history of paying dividends, it will likely continue to do so. If the dividend is cut, the stock price is likely to fall. See also: Common Dividends.

• A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

• The amount distributed to stockholders from a company s net profit.


Follow this link for all the terms related to dividend.

 Embedded terms in definition
 Board of directors
Common dividends
Long term
Net profit
Preferred dividends
Preferred shares
 Referenced Terms
 Adjustable rate or floating rate preferred share arps: Preferred share whose Dividend rate is tied to interest rates on specific government securities.

 Asymmetry: A lack of equivalence between two things, such as the unequal tax treatment of interest expense and Dividend payments.

 Attribute bias: The tendency of stocks preferred by the Dividend discount model to share certain equity attributes such as low price-earnings ratios, high dividend yield, high book-value ratio or membership in a particular industry sector.

 Auction rate preferred stock: Abbreviated ARPS. Floating rate preferred stock, the Dividend on which is adjusted every seven weeks through a Dutch auction.

 Average dividend yield: Combined with price appreciation, the average Dividend yield (if any) can show a potential total return from a security investment. The formula for the average dividend yield is:
(EPS *Average Payout) / current price
where EPS = Estimated Future High EPS / (1 + EPS Growth) 2.5
Companies that pay a dividend will generally increase the dividend as EPS grow. Share price growth will usually follow the dividend increases, and thus keep dividend yield at a constant percentage.

 Related Terms

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