A dividend is a slice of a company's profits paid out to shareholders. Not every company pays one. Fast-growing tech firms often reinvest everything. Mature companies with steady cash flow, like utilities and consumer staples, tend to pay regularly.

Dividends are usually paid quarterly, though some companies pay annually or monthly. The board of directors decides the amount. Once declared, the dividend becomes a liability. Shareholders of record on a specific date receive the payment, which can arrive as cash or additional shares.

Investors like dividends because they provide income without selling the stock. Retirees often build portfolios around them. But dividends are not free money. When a company pays a dividend, its share price typically drops by roughly the same amount on the ex-dividend date. The total value to the investor is unchanged at that moment.

Key dates and terms

• Declaration date: board announces the dividend
• Ex-dividend date: cut-off for buying to receive it
• Record date: company confirms eligible shareholders
• Payment date: money is sent
• Yield: annual dividend divided by share price