Dividend
A dividend is a distribution of company earnings to shareholders. It is not free income — the share price adjusts downward by approximately the dividend on the ex-dividend date, so a dividend transfers value from the holding to the holder rather than creating it.
This is the single most misunderstood point about dividends. Receiving a 4% dividend does not make you 4% better off; roughly that value has left the share price. Total return — price change plus dividends — is the figure that describes what actually happened.
Why a high yield is not automatically good
Yield is the dividend divided by the price. A yield can rise because the payment increased, or because the price collapsed, and the second is common in companies under stress. A very high yield is frequently a signal that the market expects the payment to be cut rather than an opportunity that others have missed.
Dividends are genuinely useful for investors who need income without selling holdings. They are not a way of getting a return without market risk, and no dividend obligates a company to keep paying it.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
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