Dividend

A dividend is a share of a company's profit paid out to shareholders in cash. Owning a stock means owning a slice of the business, so receiving part of what it earns is a shareholder's right.

To receive one you must hold the stock on the record date. Once that date passes the share price typically drops by roughly the dividend amount, which is called the ex-dividend adjustment. That is why buying the day before and selling the day after rarely works.

Dividend yield is the payout measured against the share price, and the payout ratio is the share of profit handed out. An unusually high yield can simply mean the price has fallen hard, so a big number is not automatically good news.

Growing companies often reinvest their profit instead of paying it out, while mature companies tend to pay more. Dividends are less a matter of good or bad than a signal of which stage a business is in.