So what is a dividend you ask? You have come to the right place!
A dividend is a portion of a corporation’s profits paid to its shareholders per share owned.
So as a part owner in the company, you will receive some of the profits in cash. These dividend distributions mostly get paid out monthly, quarterly or annually.
Now dividend payments can sometimes come in other forms such as stocks or bonds, but this is less common with the companies we have in our crosshairs.
Besides, with cash, you can choose how, for what price, and when you want to put money to work for you like the good worker it is!
You will learn how to spot a dividend champion stock and how to get it for the right price later on. For now let’s stay focused on the definition of a dividend...
Ok more on... what are dividends?
The corporation’s board of directors has to approve these dividend distributions before they can be paid out to shareholders. In the companies we’re after, this approval process is a regular and long running tradition.
This is because they’re very proud of their glowing reputation for reliably paying out and increasing their dividend payouts to shareholders year in and year out. This pride of reputation is a sign of an excellent dividend machine. You will learn more about this later too.
A company that pays out dividends is a sign of a financially stable and mature company... dividends don’t lie!
But a company that has managed to pay out and increase dividend payouts every year for many years, through boom and bust, is a sign of a rock solid company that has built a fortress around itself.
These are the companies we are targeting.
When companies become large, they reach a point where rapid growth is no longer possible or very difficult to achieve. At this point, many companies choose to retain and reinvest just enough of the profits to finance growth, while paying the rest out as dividends to shareholders.
The best companies make it a mandate to hit growth targets annually so they can increase dividend payments to their shareholders every year.
A beautiful thing and a powerful wealth builder!
Well that wraps up our answer to your question... what is a dividend? Now that you have a handle on the definition of a dividend, let’s get you going on your journey to dividend investing!