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Learn What Dividend is in 2 Minutes

Welcome to professorsavings.com, we teach finance basics. Today we will teach you what dividend is.

Hi I’m Rayfil Wong.  We hope these investment concepts will help you be a better investor.

A dividend is a cash distribution by a company to its shareholders.

Let’s look at Ray’s Laptops. To open his first shop, Ray gathers money from investors and issues shares. Ray’s Laptop is a hit and sales skyrocket.

Ray uses the company’s profits to open up more and more shops.

Soon, Ray reaches the point where his laptop shops are competing with each other for sales.

This is known as market saturation. Instead of opening more shops, Ray decided to focus on keeping sales strong in his existing shops.

Profits continue to roll in.

Ray now has the choice between investing his profits or simply paying them out to the shareholders.

Ray knows he can sell laptop, he’s not sure he can make a profit investing so he decides to payout some of his profits directly to the shareholders.

Ray holds back some profits in case of an emergency and pays out all the cash he doesn’t need to run his business. This cash is a dividend.

Some investors like investing in stocks that issue dividends so they can get cash back from investment.

It can be increased or decreased yearly according to how Ray’s business performs.

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