{"id":440409,"date":"2022-03-14T13:54:00","date_gmt":"2022-03-14T13:54:00","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=440409"},"modified":"2025-07-01T09:57:02","modified_gmt":"2025-07-01T08:57:02","slug":"dividends","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/share-trading\/share-trading-guides\/share-trading-glossary\/dividends","title":{"rendered":"What are dividends?"},"content":{"rendered":"

Dividend stocks allow investors to generate a cash income from their share portfolio without having to sell any shares. Buying dividend stocks<\/a> can be a good strategy for retirement investors, but it can also work well for investors targeting long-term growth.<\/p>

In this guide, we\u2019ll explain what dividends are, how they work and when they\u2019re paid. We\u2019ll also help answer common questions such as \u201care dividends safe?\u201d and \u201cdo all stocks pay dividends?\u201d.<\/p>

What is a dividend?<\/h3>

A dividend is a share of the annual profits of a company that is paid to its shareholders.<\/p>

Dividend payments are divided up so that an equal amount is paid for every share in the company. For example, if a company has 1,000 shares and has a share price of \u00a3100, shareholders will be paid a dividend of 10p for each share they own.<\/p>

When a company\u2019s profits rise, its dividend will often rise too, providing a rising income for shareholders.<\/p>

The majority of dividends are paid in cash, but companies sometimes pay stock dividends by issuing new shares to shareholders.<\/p>

What is a dividend stock?<\/h3>

A dividend stock is simply a share in a company that pays dividends. Apart from this, dividend stocks are identical to all other shares. Remember, stocks and shares are the same thing.<\/p>

When a dividend is paid, the money is paid automatically to all shareholders.<\/p>

Why do companies pay dividends?<\/h3>

Companies pay dividends to return a share of their profits to shareholders. This is done to provide a return to shareholders and to prevent too much surplus cash building up on the company\u2019s balance sheet.<\/p>

Dividends are most common among larger or slow-growing businesses. These may only need to reinvest a portion of their profits each year, so they can return the remainder to shareholders.<\/p>

In contrast, some smaller or fast-growing companies may not pay dividends, as they need to reinvest all of their profits to support continued growth.<\/p>

How do dividends work?<\/h3>

There is a strict routine for paying dividends. This makes it easy for shareholders to know exactly what they will be paid and when.<\/p>