As a company earns from its products and services, sometimes it enjoys the gratification of profit; sometimes bear the pain of loss. At the happy times, a certain amount of its earnings is distributed among the shareholders; this amount of distribution is termed as a dividend. In layman terms, the dividend is a part of company’s earning distributed among the shareholders. The dividend can be distributed in varied forms like cash, shares in stocks, or any other property, etc. The stocks that help the stockholder gain this cash portion of the company’s earnings are known as dividend producing stocks.
Sectors like oil and gas, healthcare and pharmaceuticals, basic materials, banks and financial, utilities, etc. are the sectors or industries that are usually among the highest dividend yielders. Dividend producing stocks normally are not the newbies of the market or the startup companies as their profits get reinvested in the business to grow in a more robust way. Rather, industries that are more established and mature distribute dividends among their shareholders.
The term dividend is a part of Latin word spelled as “dividendum” which means “thing to be divided”. The dividend is distributed on the basis of the number of shares a shareholder owns.
The dividend also comes under the tax category as well. In the United States and Canada tax rate on the dividend is lower than the ordinary income tax rate as the company has already paid corporate tax on this amount of its profit.