Dividend refers to the portion of a companyís profits that is distributed to its shareholders as a reward for their investment. It represents a companyís commitment to sharing its financial success with investors and is one of the key indicators of a firmís profitability and financial stability. Dividends are typically paid in cash, but they may also be issued in the form of additional shares, known as stock dividends.

The decision to declare and distribute a dividend lies with the companyís board of directors. Before announcing dividends, companies assess factors such as profit levels, future expansion plans, cash flow requirements, and overall market conditions. The portion of profits retained for business growth is called retained earnings, while the distributed part is the dividend payout.

Dividends can be categorized into several typesóinterim dividends, which are declared during the financial year, and final dividends, announced at the end of the year after the financial statements are finalized. Some companies also issue special dividends when they earn exceptional profits. For long-term investors, consistent dividend payouts often reflect the companyís strong fundamentals and reliable cash flow.

The dividend yield is a key metric used to evaluate the return from dividends relative to the stockís market price. It is calculated as (Annual Dividend ˜ Current Share Price) ? 100. While high dividend yields may appear attractive, investors should also assess whether they are sustainable, as extremely high yields can sometimes signal financial stress or a declining stock price.

In summary, dividends play an important role in wealth creation and portfolio diversification. They offer investors a regular income stream and reflect a companyís confidence in its future performance. However, investors should not base decisions solely on dividend history but should also consider overall business health, growth potential, and market conditions before investing.