Financial Word of the Day: Dividend
- Larry Jones
- 1 day ago
- 2 min read
Definition of Dividend
A dividend is a payment a company makes to its shareholders, usually from its profits. If you own shares of a company that pays dividends, you receive a portion of the company’s earnings—typically on a quarterly basis—just for being an owner.
In simple terms: A dividend is money your money earns because you own part of something profitable.
Why Dividends Matter
Most people think investing only makes money one way: Buy low. Sell high.
That’s growth investing.
But dividends introduce a second way to win: Get paid while you hold.
When a company earns profits, it can reinvest those profits back into the business—or it can distribute a portion to shareholders. That distribution is the dividend.
It’s income without selling your shares. It’s cash flow from ownership.
And that’s a powerful shift in thinking.
How Dividends Work (Real-World Example)
Let’s say you own 1,000 shares of a company that pays a $0.50 quarterly dividend.
That means:
$0.50 per share
× 1,000 shares
= $500 every quarter
That’s $2,000 per year—without selling a single share.
In conversation, it might sound like this: “I’m not selling my stock. I’m holding it for the dividend income.”
That’s someone thinking long-term. They’re not just chasing price appreciation. They’re building income-producing assets.
Dividend Yield: The Quick Metric
When evaluating dividend stocks, investors often look at dividend yield.
Dividend yield = Annual dividend ÷ Stock price
If a $100 stock pays $4 per year in dividends, the yield is 4%.
That’s helpful for comparing opportunities—but remember: A high yield isn’t automatically a good yield.
Sometimes a sky-high dividend means the company is struggling and the stock price has dropped. Sustainable, consistent dividends from strong companies are usually better than flashy payouts that disappear.
The Bigger Picture: Dividends and Wealth
Here’s where this gets interesting.
Dividends can:
Create passive income
Be reinvested to buy more shares
Compound over time
When you reinvest dividends, you’re essentially buying more ownership—without adding new money out of pocket. That’s how dividend investing becomes a snowball.
Small at first. Powerful over decades.
Many long-term investors focus less on daily stock price swings and more on growing their dividend income year after year.
That’s thinking like an owner.
The Bottom Line
A dividend is more than a payment. It’s proof of profit. It’s a reward for ownership. It’s a strategy for cash flow.
If you want to build wealth intelligently, start asking a better question: “Does this asset pay me to own it?”
Because wealthy investors don’t just buy things they hope will grow. They buy assets that grow and pay them along the way.
That’s the power of a dividend.
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