What are Dividends?

Dividends can be issued by Companies to the shareholders from the available profits. The amount of dividend that each shareholder should receive depends on how many shares they own. The more shares they own, the larger the proportion of the company they own and would receive a larger share of the profit. This share of the profit is known as a dividend and to apportion it fairly the dividend is normally expressed as an amount per share and issued monthly/quarterly/annually.

The size of the dividend depends on two things. First it depends on the amount of profit that has been made, but secondly it depends on how much of the profit is distributed to the shareholders. Profit is a vital source of funds for investment for a company and so if they were to distribute too much to the shareholders, they would damage their long-term performance. However, at the same time the shareholders are entitled to a share as the reward for the risk they have taken in investing in the company. The remainder of the profits would be retained in the company.

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