These payments are both a distribution of profits to the corporation’s owners and an incentive for investors to keep investing in the company. The more stock and ownership they own in the company, the more dividends they will receive in the future. The corporate board of directors is in charge of declaring and issuing distributions to shareholders. This process takes several steps.A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors . Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.
In a nutshell:
- A dividend is the distribution of corporate profits to eligible shareholders.
- Dividend payments and amounts are determined by a company's board of directors.
- Dividends are payments made by publicly listed companies as a reward to investors for putting their money into the venture.
- Announcements of dividend payouts are generally accompanied by a proportional increase or decrease in a company's stock price.
- Many companies do not pay dividends and instead retain earnings to be invested back into the company.