What a dividend is
When a company makes a profit, it has two choices: reinvest the money to grow, or hand some of it back to the shareholders. The cash handed back is called a dividend.
If a company pays a $1 annual dividend per share and you own 50 shares, you receive $50 a year — usually split into four quarterly payments.
Dividend yield explained
Yield is the dividend expressed as a percentage of the share price. A $50 stock paying a $2 annual dividend has a 4% yield.
A high yield is not always good — sometimes it means the share price has fallen, or that the dividend is at risk of being cut. Sustainable yields usually sit between 2% and 5%.
Why dividends matter
Dividends are an income stream that does not depend on you selling anything. Reinvested over decades, they have historically driven a huge portion of total stock market returns.
Dividend ETFs bundle dozens of dividend-paying companies together, making them an easy way for beginners to add income to their portfolio.