What is a dividend?

A dividend is defined as a distribution of a company's earnings to its shareholders. Companies typically distribute dividends to reward their investors for their support and to share a portion of the profits generated from their operations. This form of reward can be an essential aspect of stock investments, as dividends can provide a steady income stream and contribute to total returns on an investment. The decision to pay dividends, along with the amount and frequency, is made by the company's board of directors and can vary based on the company's financial situation and growth strategies.

This understanding of dividends is crucial for investors as it helps inform their investment strategies and expectations regarding returns. Dividends can differ significantly among companies based on profitability, sector, and overall financial health, making it a key consideration for anyone looking to invest in stocks.