There are two main ways that stock market investors can earn returns: share price increases and dividends。Dividends are payments made by a company to shareholders to share a portion of the company's earnings, usually in cash on a quarterly basis。However, companies do not have to pay dividends - depending on their financial situation or plans, they may reinvest their earnings, for example by hiring more employees or expanding into new product lines.。Dividends are usually paid by mature companies rather than early。

What is Dividend？

Dividends are a company's way of directly returning to shareholders, primarily cash payments, and one of the main ways shareholders generate a return on their investment。As a shareholder of the company, you are a partial owner of the company, and if the company pays dividends, you may receive a pro rata share of the company's earnings。

However, the company does not have to pay dividends - dividends are distributed at the company's discretion。Companies may change the frequency and amount of dividend payments, and early-stage and growth companies often do not distribute dividends, preferring instead to reinvest profits into their own growth, such as building new plants or hiring more researchers.。

In order for a company to pay dividends to shareholders, it must be approved by the Board of Directors (consisting of corporate advisers representing the interests of shareholders) - the timing of dividends is determined by the company's management and whether or not they are paid is determined by the Board of Directors.。

How Dividends Work for Investors

Every registered shareholder is entitled to a dividend at a time specified by the company。Often, the shares you own are actually held by your broker, so the broker accepts dividend payments on your behalf and distributes them to your account。

Companies that pay dividends

New companies often spend money differently than mature companies because they often have different priorities。Dividends may reflect these differences。New companies may still be in the growth phase, so they tend not to pay dividends, and the more mature companies are more likely to pay dividends。

Growth stocks: When a company has growth opportunities, reinvesting earnings may make more sense than paying shareholders。For example, if a company has just created an innovative software program, the short-term goal may be to market it to new customers, so the company may invest in hiring more salespeople instead of paying dividends to shareholders.。

Mature stocks: When companies grow in size and the days of rapid growth become a thing of the past, they are more likely to return shareholders with dividends rather than invest in further growth。

Regardless of when a company was founded or its size, its leaders must decide what is best for shareholders: paying dividends, investing in growth, or repaying debt.。The answer depends on many factors, including the growth stage of the company。

Significant dates related to dividends

Companies that pay dividends in cash tend to pay special dividends on a quarterly or one-time basis.。To get a dividend you need to make sure you become a shareholder on the right date (record date)。Here is the timeline you need to know:

• Declaration Date: This is the announcement of the Board of Directors of the Company regarding the amount of the dividend, the date of record and the date of payment.。
• Ex-dividend date: no dividend will be received on shares not purchased before this date and must wait until the next dividend is declared。Since the settlement of a stock purchase usually takes two days, the ex-dividend date is the day before the record date, and you must purchase the stock before the ex-dividend date to receive the dividend。
• Record Date: This is the date you need to be a shareholder to receive a declared dividend。There is usually a delay (usually two days) between when you give the order to buy shares and when you become a full shareholder, be sure to be there in advance。
• Payment Date: This is the date on which dividends are paid to eligible shareholders (i.e., registered shareholders on the record date)。Depending on the instructions you leave in your brokerage account, the money may appear as cash in your account or may be reinvested in the company that pays the dividend。

The impact of dividends on share prices

Dividends can send important signals to the market about the company's business conditions, which means that dividend decisions can cause stock prices to rise or fall。

• How dividends boost share prices: Dividends are a celebration of a company's projected profits and can be seen as a reward for shareholders investing in the company。If a company declares a new or increased dividend, it can make the stock more attractive to a specific group of investors and increase the attractiveness of the stock。Dividends can be particularly attractive if you are a long-term investor looking for a solid income from stocks。
• How dividends hurt share prices: If a company announces a dividend cut, it could indicate that the company is in trouble。Companies usually only offer dividends when they are confident they can maintain their dividend yield, which relies in part on sustained profits because they want to avoid negative signals from dividend cuts。

Why Companies Pay Dividends

For a company, paying dividends is usually profitable (or at least has a history of profitability)。There are three main things companies can do with dividends:

• Reward shareholders through dividends or share buybacks
• Repayment of any debt owned
• Proceeds from reinvesting in stocks

Investment interest paid on dividends

The dividend yield is the percentage of the share price that pays dividends each year。This indicator is usually compared to the coupon rate of a bond because both measure the cash income an investor receives relative to the price of the investment。

Companies with higher dividend yields are often attractive to more conservative stock investors.。Stocks with low or zero dividend yields are either unprofitable or may be investing in future opportunities。These are often classified as growth stocks and may have different investment advantages than dividend-paying stocks。