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What Is a Dividend?

Whether you own a business or you want to invest in one, you should learn about the dividend definition and how it affects you. In basic terms, a dividend is a distribution of a company’s earnings. Keep reading to learn more about dividends, how they are distributed and why they’re relevant to you.

How Does a Dividend Work?


If you own stock in a company, you have the opportunity to receive money from a dividend. The more stock or ownership you have, the more you will receive as dividends are generally paid for each share of stock owned.

However, when you receive the earnings and how much you will receive might vary from time to time.

What Is a Dividend Yield?

A dividend yield is a financial ratio that measures the portion of cash dividends paid out to shareholders relative to the market value of the share. What this means is that the dividend amount will vary depending on how high or low the market value is.

Why Is a Dividend Important?

A dividend is important because basic financial theory states that all companies exist solely for the purpose of paying out dividends and earning money.

A company may refrain from paying dividends as the company continues to grow because they believe the payout will significantly increase or a bigger company will acquire them. On average, most companies that pay dividends will pay dividends four times a year

The Board of Directors is required to declare and pay out dividends, so when the board makes a declaration, they also decide on a payable date to ensure stockholders of when they will receive their income.

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How Are Shareholders Paid?

The Board of Directors will decide how the funds will be distributed and can give them out in one of three ways:

  1. Cash Dividends—These dividends are paid out of a company’s profits to the owners of a business. Depending on the company, preferred shareholders may be paid out before common shareholders are paid.
  2. Property Dividends—Funds can also be distributed through property, which refers to any tangible item at market value. This can include items such as pens, books, cocoa beans, stocks or railroad cars. Property dividends are recorded at market value on the declaration date.
  3. One-Time Special Dividends—These dividends are rare and can occur due to a business sale or investment liquidation. Rather than being paid out of a company’s profits, these tax-free funds are essentially paid as a return of money to the shareholders who have already invested.

Save Money with Synchrony Bank

Before investing in stocks or bonds, make sure you have enough money set aside in savings. An easy way to do this is to open an FDIC-insured high yield savings account through Synchrony Bank.*

Our banking representatives can provide options to increase your savings and help you plan for your financial future. Now that you’re familiar with the definition of a dividend, call Synchrony Bank at 844-345-5789 and open an account today to start saving.




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*FDIC insures our customers up to $250,000, per depositor for each ownership category.

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