A portion of a publicly-traded company or fund's earnings that is distributed to shareholders. The amount of earnings distributed as dividends is usually determined by the board of directors and divided by the number of shares. but preferred stock often has guaranteed dividends. Dividends exist in order to encourage investment in the company and to allow shareholders (who are really co-owners) to participate in the profits. A rapidly expanding company often pays little or nothing in dividends, as most of its earnings are reinvested in the company. On the other hand, a well-established company with solid profits likely pays relatively high dividends.
Corporations may pay part of their earnings as dividends to you and other shareholders as a return on your investment. These dividends, which are often declared quarterly, are usually in the form of cash, but may be paid as additional shares or scrip.
You may be able to reinvest cash dividends automatically to buy additional shares if the corporation offers a dividend reinvestment program (DRIP).
Dividends are taxable unless you own the investment through a tax-deferred account, such as an employer sponsored retirement plan or individual retirement account. That applies whether you reinvest them or not.
However, dividends on most US and many international stocks are
considered qualifying dividends. That means you owe tax at your long-term capital gains rate, provided you have owned the stocks the required length of time.
Dividends on real estate investment trusts (REITs), mutual savings banks, and certain other investments aren't considered qualifying and are taxed at your regular rate.
What Does Dividend Mean?
(1) A distribution of a portion of a company's earnings paid out to shareholders. The dividend most often is quoted in terms of the dollar amount each share receives (dividends per share). It also can be quoted in terms of a percentage of the current market price, referred to as dividend yield. Also referred to as dividend per share (DPS).
(2) Mandatory distributions of income and realized capital gains made to mutual fund investors.
Investopedia explains Dividend
(1) Dividends may be in the form of cash, stock, or property. Most secure and stable companies offer dividends to their stockholders. Their share prices may not move much, but the dividend is used in an attempt to make up for this. High-growth companies rarely offer dividends because they reinvest their profits back into the company to help sustain higher-than-average growth. (2) Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to fund shareholders.