Dividends are shareholders’ cut of earnings
THE MOTLEY FOOL
What’s a dividend? – M.J., Santa Rosa, Calif.
It’s a payment that many companies make to shareholders out of their earnings. If Dodgeball Supply Co. (ticker: WHAPP) earns $2 per share in profit, it might decide to issue $1 annually to shareholders, using the balance in other ways, such as building its business or paying down debt. It will probably pay out 25 cents per share every three months. This may seem like peanuts, but it adds up. If you own 400 shares of a company that’s paying $1.50 per share in annual dividends, you’ll get $600 per year from the company. Plus, healthy companies generally increase their dividend amounts periodically. You’ll often see a dividend expressed as a yield. A company’s dividend yield is its annual dividend divided by its current stock price.
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THE MOTLEY FOOL IS WRITTEN BY TOM AND DAVID GARDNER FOR UNIVERSAL PRESS SYNDICATE.