What is a dividend?

Cheat Sheet:

  • A dividend is cold, hard cash some companies pay out to their shareholders.
  • Mature companies that make steady profits are more likely to pay dividends.

The way most people think of making money in the stock market is by buying low and selling high. For certain stocks, you can also make money just by holding the stock. These are called dividend stocks.

Which companies do it, and how often? Mature companies are more likely to issue dividends. They’re at the stage where they aren’t growing as much but making steady profits that they distribute to the owners of the company (shareholders like you). Ford, Chevron, Coke, and Verizon are good examples.

Younger companies are less likely to issue dividends. They’re more interested in plowing their profits back into the company.  Facebook, Tesla, and Snap are good examples. Other companies do some combination of the above, or keep the cash in their coffers to buy back their own stock.

Most companies that issue dividends do it quarterly, and the board of directors decides how big the dividend will be. For example: in May 2017, Apple paid a dividend of 63¢ per share. So if you owned 10 shares of Apple stock, $6.30 of cash automatically showed up in your brokerage account.

It’s like a hen that lays golden eggs for as long as you own her.

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