A portion of a company's profits distributed to shareholders, typically quarterly, as cash payments or additional shares.
A dividend is a cash return that shareholders receive simply for holding a stock, independent of price appreciation. Companies pay dividends from retained earnings or free cash flow; a board-declared dividend establishes the per-share amount, the record date (which shareholders qualify), the ex-dividend date (the first day a buyer does not qualify for the upcoming payment), and the payment date.
Dividend yield - the annual dividend divided by the current stock price - is the primary metric for income investors: a USD 2 annual dividend on a USD 40 stock yields 5%. The payout ratio (dividends paid as a percentage of earnings) indicates sustainability: a 40% payout ratio leaves earnings to reinvest; a 100%+ payout ratio - paying more than is earned - is unsustainable without external funding.
For traders with leveraged positions (CFDs, options), dividends require attention. On the ex-dividend date, a stock's price typically falls by approximately the dividend amount as the value is extracted from the company. CFD holders short a stock earn the dividend equivalent but those long must pay it (an adjustment to the position rather than a cash flow). Equity strategies that screen for high-dividend-yield stocks - 'dividend investing' - focus on companies with consistent payout histories, financial strength to maintain payouts through cycles, and ideally growing dividends (Dividend Aristocrats: S&P 500 companies with 25+ consecutive years of dividend growth).
Worked Example
A company declares a USD 0.50 quarterly dividend. Ex-dividend date: 15 June. Record date: 16 June. Payment date: 30 June. A trader who buys the stock on 14 June qualifies and receives USD 0.50 per share on 30 June. On 15 June, the stock opens approximately USD 0.50 lower than the prior close to reflect the outflow. If a trader holds a long CFD, the broker credits an equivalent dividend adjustment to their account.