A dividend is a cash or stock payment made by a corporation to its shareholders, typically from profits, on a regular schedule. Dividends are a component of total return for stock investors and are taxed differently based on whether they are 'qualified' (long-term capital gains rates) or 'ordinary' (regular income rates).
Dividends represent the portion of corporate earnings distributed to equity owners. A company's board of directors declares dividends; common metrics include the dividend yield (annual dividends per share ÷ stock price) and the payout ratio (dividends paid ÷ net earnings). Tax treatment under the Internal Revenue Code: qualified dividends — those paid by U.S. corporations or qualifying foreign corporations, held for the required holding period — are taxed at long-term [[capital-gain]] rates (0/15/20%). Ordinary (non-qualified) dividends are taxed as ordinary income. REIT dividends are mostly ordinary; most dividends from standard S&P 500 companies are qualified. The SEC requires public companies to disclose material dividend policy changes. Dividend reinvestment plans (DRIPs) allow investors to automatically use dividends to purchase additional shares — a form of compounding that accelerates wealth accumulation. Low-cost index ETFs pass through the underlying dividends of their holdings to shareholders periodically. For income-focused investors, the dividend growth strategy targets companies with long histories of increasing dividends (the S&P 500 Dividend Aristocrats have raised dividends for 25+ consecutive years). For total-return investors, a company's dividend decision is secondary to reinvestment of earnings.
The ex-dividend date is the cutoff: you must own the stock before this date to receive the upcoming dividend. The stock price typically drops by approximately the dividend amount on the ex-dividend date, reflecting the cash leaving the company.
No. Boards can cut or suspend dividends at any time. Dividend cuts often signal financial stress and typically cause significant stock price declines.