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Know Your Terms : Dividend

A dividend is a portion of a company’s profits that is paid out to its shareholders. When a company accumulates retained earnings, management can choose to reinvest in the business to fuel growth, pay off debts, or save for future needs. Alternatively, management can decide to share some of these profits with shareholders. This profit sharing is called a dividend.


Terms

1. Dividend Yield: The annual dividend payment divided by the current price of the stock.

2. Dividend Payout Ratio: The proportion of earnings that are distributed as dividends.

3. Dividend Per Share (DPS): The dividend paid per share.

4. Ex-Dividend Date: The date after which new investors are ineligible for the forthcoming dividend payment.

5. Record Date: The date by which investors must possess the stock in order to receive the dividend.

6. Payable Date: The date on which the dividend is distributed to shareholders.

 

Key Concepts

1. Dividend Aristocrat: A company that has maintained its dividend distribution for a minimum of 25 consecutive years.

2. Dividend King: A company that has increased its dividend distribution for a minimum of 50 consecutive years.

3. Dividend Investing: A strategy that emphasizes the acquisition of securities that pay dividends in order to produce consistent income.

 

Benefits of Dividend Investing 

1. Consistent Income: Dividend-paying securities generate consistent income.

2. Reduced Volatility: Dividend equities are generally less volatile than growth stocks.

3. Inflation Protection: Dividend payments can increase over time, thereby serving as a hedge against inflation.

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