Dividends

When a company makes profits, it can do two things - re-invest the money or pay to its shareholders.

Generally, most company's will re-invest most of the money (usually called retained earnings on the balance sheet) and pay a portion to it shareholders.

Those companies that pay, will often allocate a fixed amount per share. For example a company may say that they will pay you the investor .20 cents for every stock you own.

This means that if you own 1,000 shares you get paid $200.

These are often paid on a fixed schedule. At the company's discretion however, they may declare a special dividend at any time.

These monies are not considered an expense. Rather they are considered the division of assets among shareholders

Settlement / Re-Investment

Publicly traded companies will usually settle either by cash or shares in the company(either newly-created shares or existing shares bought in the market.)

In addition - many of these companies offer reinvestment plans, which automatically use the cash to purchase additional shares. These additional shares are usually added to your stock trading account by your online stock broker.


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