Dividends are payments when company makes higher profit then it issues some part of profits with its stockholders. They’re paid on a quarterly basis, and they are one of the ways investors earn a return from investing in stock. its not compulsory to distribute dividend , its companies decision to pay dividend or not,
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But not all stocks pay dividends — if you are interested in investing for dividends, you will want to specifically choose dividend stocks.
How do stock dividends work?
A dividend is paid per share of stock — if you own 30 shares in a company and that company pays $2 in annual cash dividends, you will receive $60 per year.
Read also : Benefits of investing in stock market
Types of dividends
Usually, dividends are paid out on a company’s common stock. There are several types of dividends a company can choose to pay out to its shareholders.
- Cash dividends. The most common type of dividend. Companies generally pay these in cash directly into the shareholder’s brokerage account.
- Stock dividends. Instead of paying cash, companies can also pay investors with additional shares of stock.
- Dividend reinvestment programs (DRIPs). Investors in DRIPs are able to reinvest any dividends received back into the company’s stock, often at a discount.
- Special dividends. These dividends payout on all shares of a company’s common stock, but don’t recur like regular dividends. A company often issues a special dividend to distribute profits that have accumulated over several years and for which it has no immediate need.
- Preferred dividends. Payouts are issued to owners of preferred stock. Preferred stock is a type of stock that functions less like a stock and more like a bond. Dividends are usually paid quarterly, but dividends on preferred stock are generally fixed, unlike dividends on common stock.