What is Dividend?

A dividend is a payment made by a corporation to its shareholders, comprising a percentage of the corporation's profit which is set by the board of directors. Dividends are usually issued as cash payments (normally deposited in a bank account) or as more shares in the company, which makes owning shares in prospering companies even more valuable than just the value of the actual security. In the run-up to the payment of a dividend it is usual for the price of the shares to rise, as investors seek to capitalise on the windfall gain. Once the payment has been made, though, the stock is termed 'ex-dividend', and the price tends to fall at least for a short time.