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What is a dividend?

Dividends are a portion of the company's profits that is paid to shareholders. If a company makes a profit, they might issue a dividend. Dividends are paid up to four times a year, after each quarter. Usually dividends are grouped into "interim dividends" and "final dividends".

Dividends are paid out to shareholders in proportion to how many shares they own as dividends are issued as per share. This is known as a pro-rata basis. Companies that issue dividends regularly are sometimes called "income stocks" as they historically provide shareholders with a regular income, as opposed to growth stocks, which often forgo dividends in order to reinvest and grow the business.These are often companies that are high growth, new and smaller compared to those that issue dividends regularly, which tend to be more established.

Some investors may take advantage of "dividend reinvestment plans" where the shareholder receives additional shares in lieu of a dividend.

 

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