What is a Dividend?  A Simple Explanation + 4 Tips

Whether you are just starting to invest or have been investing for decades, dividends can be a valuable part of anyone’s investing portfolio.

What is a Dividend?

A dividend is a distribution of a portion of a company’s earnings paid to the shareholders. Dividends can provide income and growth for long-term investments. In addition, many times, there will be options to reinvest dividends back into the same company automatically.

Why Companies Pay Dividends

The simple answer is to attract more investors.  Many companies that payout dividends are well-established and stable companies. By paying a dividend, they attract investors creating more demand for their stock.

Why Companies Don’t Pay Dividends

Many companies won’t pay dividends for several reasons, the biggest being it hurts their bottom line. That is much less cash the company has and is therefore much less valuable when paying out dividends. Usually, companies just starting up, like a new online business, are more mindful of their cash flow.

How Do You Earn A Dividend?

Earning a dividend is an easy feat to accomplish. The company will automatically pay to your brokerage account at distribution time by buying a stock or mutual fund that pays out dividends.

Four Companies That Pay Dividends

Many of the companies that pay out dividends are long-standing, well-established companies. As a result, they will pay out dividends to continually attract investors, further pushing their stock price. Below are examples of four such companies.


Walmart certainly doesn’t have the highest dividend payout, with about a 1.5% dividend yield for one of the world’s largest companies. But, again, one of the reasons people invest in Walmart is its staggering size, and the dividends tend to be a bonus.

Exxon Mobil

Despite the lessening dependence on oil, Exxon Mobil is still one of the largest energy companies in the world. Another powerhouse company that can afford to reward faithful investors with a 6.7% dividend yield. Exxon also has quite the streak of consecutive increases, currently sitting at 37 years and counting.

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