What is a dividend?

Dividend: A part of the profit a company pays to shareholders. A company is not obliged to pay it and can lower or cancel it.

When a company makes a profit, it can give part of it to its shareholders. That is called a dividend. It is usually paid per share, for example once a year or every quarter.

A company does not have to pay a dividend. In bad years it can lower the dividend or stop it altogether. Growth companies often pay nothing and put the profit back into the business.

The dividend yield is the dividend divided by the share price. A high percentage can look attractive, but it can also be the result of a sharp fall in the price.

Example
You own 200 shares and the company pays a dividend of 1.50 euros per share. You receive 300 euros, before tax. If the share price is 40 euros, the dividend yield is 1.50 divided by 40, which is 3.75 percent.

Watch out
Tax may be withheld on dividends. A high dividend yield says nothing about how healthy the company is.

Read more in the guide Dividends: why a high percentage is not always good news.

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