Dividend
Dividends are payments made by a company to its shareholders. Typically, when a company is making a profit, it distributes those profits to its owners (the shareholders) by way of a dividend.
When a company makes a profit, some of this money is typically reinvested in the business and called retained earnings, and some of it can be paid to its shareholders - as a dividend. Paying dividends reduces the amount of cash available to the business.
Companies that pay dividends are usually least volatile and are typically large and established companies. Smaller, high growth companies usually do not pay dividends, as they need to reinvest that money into business to support the growth.
Dividends are taxable as a regular income and at much higher rate than that applied to long term capital gain. As of 2003, cash dividends are taxed at a maximum rate of 15% as long as the stock has been held for at least 60 out of the 120 days beginning 60 days prior to the ex-dividend date. If you have held the stock for a period of less than this the dividend will be taxed at your regular income level.
| Related Terms: Cumulative Dividend Declaration Date Dividend Reinvestment Plan – DRIP Dual Purpose Fund Equity Financing Ex-Dividend Illegal Dividend Income Stock Indicated Dividend Indicated Yield |
 |