What is a dividend?

Payouts to shareholders are typically awarded quarterly

Dividends are a portion of a company’s earnings that are paid out over a specified time to shareholders.

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The payouts are set by a company’s board of directors and approved by the shareholders as the ultimate owners. The amount may fluctuate over time, based on the company's performance, and businesses with large and consistent payouts typically become known as "dividend stocks," prized as a source of regular income.

Issuing a dividend isn't required, and some corporate leaders have argued that they can deliver better returns by investing the money into new factories and stores or acquisitions, which if successful, increase the value of investors' holdings.

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Typically dividends are paid quarterly, but can also be awarded monthly, semi-annually or annually. A company’s board of directors will sometimes award a special dividend after an asset sale or one-off event.

Because of the time lapse between a dividend's announcement and the payment date, a period in which shares may change hands, companies set a so-called "record date" and holders of the stock on that date receive the payment.

Shares sold between the record date and the payment date are said to be trading ex-dividend, meaning the buyer won't receive the upcoming payout.