What Is a Dividend?
A dividend is cash a company pays its shareholders, usually out of profits. How dividends are paid, what dividend yield means, how they're taxed in the US, and why a very high yield can be a warning.
In one sentence
Dividend. A payment a company makes to its shareholders, usually in cash, out of its profits. Dividends are decided by the company's board and aren't guaranteed.
How it works
A company that earns a profit can keep it to reinvest or pay some of it to shareholders as a dividend. To receive one, you must own the shares before the ex-dividend date: buy on or after it, and the seller, not you, receives that dividend.1
Dividend yield
Dividend yield = Yearly dividend per share ÷ Share price
| Share price | Yearly dividend | Dividend yield |
|---|---|---|
| $50 | $2.00 | 4.0% |
| $25 | $2.00 | 8.0% |
The yield doubled because the price halved, not because the company paid more. If the price fell because investors expect trouble, that $2.00 may not last.
Taxes in the US
In a taxable account, a dividend is generally taxed in the year it's received. Ordinary dividends are taxed as regular income; qualified dividends are taxed at the lower capital gains rates.2 How Dividends and Interest Are Taxed has the details.
Learn it properly
- What a Stock IsPart 2: What You Can Own · Free
- Dividends and BuybacksPart 2: What You Can Own
Notes and sources
- Investor.gov, U.S. Securities and Exchange Commission. Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends. Checked 2026-09-27. Back to text
- Internal Revenue Service. Topic no. 404, Dividends and other corporate distributions. Checked 2026-09-26. Back to text