Dividend

Meaning:

A dividend refers to a portion of a company’s profit that is distributed to its shareholders. When a company earns profit, it can choose to reinvest it back into the business

or distribute part of it as dividends to the owners (shareholders).

Example:

For example, if a company declares a dividend of ₹5 per share and you own 100  shares, you would receive ₹500 

as a dividend.

How to understand Dividend

Dividends provide a source of income to shareholders, supplementing any gains from the  increase in stock price.

They indicate a company's financial strength, as only profitable and stable companies  consistently pay dividends.

Uses of Dividends:

They serve as passive income for investors without the need to sell their shares.  Many retirees depend on dividend stocks for retirement income.  Investors can reinvest dividends to buy more shares through a Dividend Reinvestment Plan  (DRIP).  Companies that pay dividends often attract long-term investors, enhancing their valuation.