What Are Dividends?
Dividends are a portion of a company’s earnings that is returned to shareholders. When a public company is profitable, they primarily have seven methods to invest their profits:
1. Hire new employees
2. Pay existing employees a higher salary
3. Purchase equipment and/or services
4. Merge or acquire another company
5. Purchase stock shares on the open market (otherwise known stock buyback)
6. Distribute the profit to shareholders (otherwise known as dividends)
7. Do nothing and save it for a rainy day.
This article discusses primarily number six.