What is a dividend?

In finance, dividends are company profits that are paid to its shareholders. Usually, they can be distributed as cash deposited into a bank account (cash dividend) or in the form of further shares (stock dividend), if the company has a dividend reinvestment plan.

The common distribution of dividends is done by fixing an amount per share, with each stakeholder receiving a dividend in proportion to their shareholding. Historically, the first company to pay regular dividends was the Dutch East India Company, which paid annual dividends worth around 18% of the value of the shares from 1602 until 1800.

New companies, such as startups in the growth phase, rarely offer dividends due to their interest in reinvesting profits in the business and maintaining expansion and above-average growth. As the companies mature, they will start offering dividends to their shareholders to sustain interest and attract new investors. Historically, the companies with the highest dividend yields are found in the following sectors: basic materials, bank and financial, utilities, real-estate investment trusts (Reits), oil and gas, healthcare and pharmaceuticals.

A company that issues dividends reflects financial stability, and this is very appealing to investors.

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Category: Financial Glossary

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