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Dividend

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A dividend is a way for a company to share its profits with its owners. These owners are called shareholders because they own shares of the business. When a corporation makes a profit, it can choose to give some of that money back to the shareholders. This shared amount is the dividend. Any profit that the company does not give away is called retained earnings. The company uses these retained earnings to help the business grow.

Microcosm of London Plate 101 - South Sea House, Dividend Hall (tone)
Microcosm of London Plate 101 - South Sea House, Dividend Hall (tone)

There are many different ways a company can pay these dividends. The most common way is with cash, often sent through a bank transfer. A person might also receive a printed paper check. Sometimes, a company gives out more shares instead of cash. This is known as a stock dividend. In these cases, if you own 100 shares, a 5% dividend would give you 5 extra shares. Other times, a company might give out assets, which are things like property or products. These are called property dividends.

International dividend frequencies
International dividend frequencies

History shows us that companies have been doing this for a very long time. The word dividend actually comes from a Latin word meaning "thing to be divided." The first recorded public company to pay regular dividends was the Dutch East India Company, also known as the VOC. This company was very successful with its payments. For almost 200 years, from 1602 to 1800, the VOC paid annual dividends. These payments were worth about 18 percent of the value of its shares.

Microcosm of London Plate 101 - South Sea House, Dividend Hall (tone)
Microcosm of London Plate 101 - South Sea House, Dividend Hall (tone)

Companies follow specific rules and dates when they pay dividends. First, a board of directors must declare the intention to pay. This is called the declaration date. There is also an ex-dividend date, which is a very important day for traders. If you buy shares on or after this date, you do not get the upcoming dividend. The people who are officially listed as owners on the record date will receive the money. Finally, the payment date is when the money actually reaches the shareholder's bank account.

Different parts of the world have different schedules for these payments. This is called the dividend frequency. In the United States, companies often pay dividends every three months, which is quarterly. In places like Japan, the UK, and Australia, they often pay every six months. In Germany, it is common to pay only once a year. Some people use a plan called a DRIP to automatically use their dividends to buy more stock. This can help their investment grow over time through a process called compounding.

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