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What is a Dividend?

By September 12, 2021No Comments

Well, when a company makes a profit, it can choose to give some of the profit it made back to its shareholders, and that’s called a dividend. The more profit a company makes (and the larger your ownership) the larger the dividend.

For example, say the Company makes $100 one year. It costs $40 to run the company, so it leaves them with $60 profit.

For this particular year, they decide to give ALL the profits back to shareholders as a reward for being so great.

This means that the $60 is divided amoung all the shareholders, with respect to how many shares they have.

i.e, if one person had 100% of the shares, they get the full $60
if two people each had 50% of the shares, they get $30 each, so on and so forth.

Fortunately, you own 30% of all the shares this company has issued, which means your entitled to 30% of the $60 profit, which is… 1/3 of $60 = $18. Not bad!

Dividend Distribution

 

That’s an oversimplification, but that’s essentially the jest of it. Most of the time a company won’t give 100% of it’s profit back to shareholders (How is the company supposed to grow and be successful!) Companies give a % of their profit back to shareholders, or they may decide to keep all the profit and grow the business more, and not give any dividend (That’s not always a bad thing).

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