Dividends

Definition

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. They can be issued in the form of cash payments, shares of stock, or other property.

5 Must Know Facts For Your Next Test

1. Dividends are typically paid out on a quarterly basis but can also be issued annually or at irregular intervals.
2. The amount and frequency of dividend payments are decided by the company's board of directors.
3. Not all companies pay dividends; some may reinvest profits back into the company for growth.
4. Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.
5. Qualified dividends are taxed at the lower long-term capital gains tax rate, whereas ordinary dividends are taxed at standard income tax rates.

Review Questions

• What factors determine the amount and frequency of dividend payments?
• How do dividend yields help investors assess their potential income from an investment?
• What is the difference between qualified and ordinary dividends in terms of taxation?

Related terms

Dividend Yield: A financial ratio that indicates how much a company pays out in dividends relative to its stock price.

Board of Directors: A group of individuals elected to represent shareholders and make key decisions about the company's management, including dividend payouts.

Capital Gains: The profit from selling an asset like stocks or real estate, which can affect overall investment returns when combined with dividends.