Generally speaking, a dividend is a distribution of a portion of a company’s earnings paid to the shareholders. Dividends can provide income and growth for long-term investments. In addition, many times, there will be options to reinvest dividends back into the same company automatically.
Many companies that payout dividends are well-established and stable companies. By paying a dividend, they attract investors creating more demand for their stock. Often, paying a dividend can be seen as a sign of power and strength within a company, making their stock more attractive to investors.
Many companies won’t pay dividends for several reasons, the biggest being it hurts their bottom line. That is much less cash the company has and is therefore much less valuable when paying out dividends. Usually, companies just starting up, like a new online business, are more mindful of their cash flow.
Earning a dividend is an easy feat to accomplish. The company will automatically pay to your brokerage account at distribution time by buying a stock or mutual fund that pays out dividends.