A dividend is a portion of business earnings distributed by a company to its shareholders, often in the form of cash.
For example, after a profitable year, a corporation's board declares a dividend of $2.50 per share. The three founding shareholders, who each own 10,000 shares, each receive a $25,000 dividend payment — reflecting their return on their equity investment.
Why it matters: They reward shareholders for their investment, but paying them out drains cash that could otherwise be reinvested into growth.
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