What is a dividend & how does it work?

A dividend is a share of profits and retained earnings that a company pays out to its shareholders and owners. When a company generates a profit and accumulates retained earnings, those earnings can be either reinvested in the business or paid out to shareholders as a dividend.

What is a dividend reinvestment?

Investors in DRIPs are able to reinvest any dividends received back into the company's stock, often at a discount. DRIPs typically aren't mandatory; investors can choose to receive the dividend in cash instead. Special dividends. These dividends pay out on all shares of a company’s common stock, but don’t recur like regular dividends.

What is a special dividend?

Special dividends might be one-off payouts from a company that doesn’t normally offer dividends, or they could be extra dividends in addition to a company’s regularly scheduled dividends. Companies generally announce special dividends when they’ve been especially profitable and want to share earnings among shareholders.

What is a dividend rate?

The dividend rate is the total expected dividend payments from an investment, fund, or portfolio expressed on an annualized basis plus any additional non-recurring dividends that an investor may receive during that period. Depending on the company's preferences and strategy, the dividend rate can be fixed or adjustable.