Dividend
Definition
A payment a company makes to shareholders (you) from its profits, typically quarterly. Some stocks pay dividends, some don't. You can reinvest dividends to buy more shares (compounding) or take them as cash. Dividend-paying stocks tend to be more stable, slower-growing companies.
Why It Matters
Dividends provide steady income from investments. A $100,000 portfolio with 2-3% dividend yield generates $2,000-3,000 yearly. Reinvesting dividends supercharges long-term returns through compound interest. Over decades, dividends often represent 30-50% of total stock returns.
Example
Own 100 shares of a company at $50/share ($5,000 total). Company pays $1 annual dividend per share. You receive $100/year. If you reinvest it, you buy 2 more shares and next year earn $102.