Dividend
-The distribution
of a portion of a company's earnings, as decided by the board of directors, to
a class of its shareholders. The dividend is most often quoted in terms of
the dollar amount each share receives (i.e. dividends per share or DPS). It can
also be quoted in terms of a percentage of the current market price, referred
to as dividend yield.
Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices may not move much, but the dividend attempts to make up for this.
In the U.S., dividends face double taxation - the amount comes from after-tax income the company generated and the recipients pay taxes on them.
As of 2003, cash dividends are taxed at a maximum rate of 15% as long as the
stock has been held for at least 60 out of the 120 days beginning 60 days
prior to the ex-dividend date. If you have held the stock for a period of less
than this, the dividend will be taxed at your regular income level.
High-growth companies rarely offer dividends because all their profits are reinvested to help sustain higher-than-average growth.
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