Dividends: when companies pay you to own them

A dividend is a small cash payment a company sends to its shareholders, usually every three months, out of its profits. If you own 100 shares of a company that pays a $0.50 quarterly dividend, you get $50 per quarter — $200 per year.

Not all companies pay them

Mature, profitable companies — utilities, banks, consumer giants like Procter & Gamble — typically pay dividends because they generate more cash than they need. Younger growth companies — Amazon for most of its history, most tech startups — reinvest every dollar back into the business and pay nothing.

Dividend yield

The dividend yield is the annual dividend divided by the share price. A $100 stock paying $3/year in dividends has a 3% yield. The S&P 500 typically yields around 1-2%. REITs and utilities often yield 4-6%.

The myth of 'free money'

Dividends aren't bonus money. When a company pays a dividend, the share price drops by roughly that amount on the ex-dividend date. The total value to you is the same — you just got some of it as cash. Whether you prefer the cash or the higher share price is a tax and personal-preference question, not a free-money question.