Definition & Meaning:

A 'dividend' is a payment which companies pay/give to the owners of its shares when it makes a profit.

When a company makes a profit, it has to decide what it wants to do with the money. Normally, companies give some of this profit to their shareholders (the people who own shares in the company) as a 'dividend' on each share they own.

When most companies make a profit, the majority of them don't give all the profit they make to their shareholders as 'dividends'. Most companies often keep/retain some of this profit. This is called 'retained earnings'. Normally, companies use the money they keep as 'retained earnings' to reinvest in the company (e.g. to buy machinery, other companies, buildings etc...), to save for the future or to pay off debts and loans that they have.

Example:

If a company pays a 'dividend' of $1.20 on each share, if you own 1000 in the company, you will receive a $1,200 payment in 'dividends'.

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Related Vocabulary:

Preferred Stock, Common Stock, IPO, Bull Market.

To learn more vocabulary connected to stocks and shares, you can do a free online exercise on stock market related vocabulary.