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Investment

Dividend

A portion of a company's profits distributed to shareholders, usually paid quarterly in cash.

When a company earns profit, its board decides what to do with it. Options: reinvest in the business (good for growth), buy back shares (boosts EPS), pay down debt, or return cash to shareholders as dividends. Mature, stable companies with limited growth opportunities tend to pay higher dividends. Fast-growing companies typically pay no dividends — they'd rather reinvest every penny.

The dividend yield tells you how much income you get relative to the share price: annual dividend divided by share price. A 4% yield on a £50 stock means £2 per share annually. But beware a very high yield — it might signal the share price has crashed (making the yield look large) rather than a sign of health.

Dividends are like getting paid to own something — while it (hopefully) also grows in value. Imagine owning a rental property that not only appreciates but sends you a check every three months. That's the dividend experience: passive income from simply holding shares. The most reliable dividend payers are sometimes called "dividend aristocrats" — companies that have raised their dividends every single year for 25+ years.

Real world: Coca-Cola has paid a dividend every year since 1893 and increased it for 60+ consecutive years. Warren Buffett's Berkshire Hathaway bought Coca-Cola stock in 1988 for around $1.3 billion. Today, Berkshire receives over $700 million in annual dividends from that investment alone — nearly a 50% annual cash return on the original cost. That's the long game.

💡 A reliable dividend is the company's way of saying: 'We make enough money that we can share it with you — and we're confident we'll keep doing it.'

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Dividend — The Dollar Dictionary

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Dividend