What is a dividend in a company?

When a company periodically rewards their shareholders with a cash payout, those are known as dividends. What is a dividend? A dividend is a portion of company earnings distributed to some or all of its investors.

What are the different types of dividends?

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).

Why are dividends important?

Dividends are considered an indication of a company's financial well-being. Once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times. Investors often devalue a stock if they think the dividend will be reduced, which lowers the share price.

How are dividends paid out?

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.