← Back to Glossary
Dividend
Definition
A portion of company earnings paid to shareholders, typically quarterly.
Explanation
Dividends are cash payments companies make from profits. Dividend yield = Annual Dividend ÷ Stock Price. The S&P 500 historically yields ~1.5-2%. Qualified dividends are taxed at long-term capital gains rates.
Reinvesting dividends (DRIP) is a powerful compounding strategy — those new shares generate their own dividends.
Example
Own 500 shares paying $2/share annual dividend = $1,000/year in dividends. Reinvest to buy more shares and compound the returns.