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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Dividend

Definition:

The "thrown off" value from common equity.

It’s not the same as interest on a bond, which is a fixed percentage and non-discretionary. Dividends are discretionary, which means the company must decide from quarter to quarter whether or not pay one.

There are a lot of reasons why companies want to be consistent in their dividend policies, but just know that a dividend on common stock is not a legal requirement.

Example

The middle of the fairway definition of a dividend is rooted in equity investments in stocks. Heinz Ketchup, ticker: HNZ, pays a $1.92 dividend per year. It is a roughly $50 stock. It’s “dividend yield” is $1.92 / $50 which is 3.84%.