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investing

Dividend

A distribution of profits to shareholders.

A dividend is a payment made by a corporation to its shareholders from after-tax profits. Dividends can be paid in cash or additional shares of stock. Qualified dividends are taxed at preferential capital gains rates (0%, 15%, or 20%), while ordinary dividends are taxed at regular income tax rates. Companies are not obligated to pay dividends and may reinvest profits instead.

Example

A small corporation earns $100,000 in net profit and declares a $40,000 dividend—two equal shareholders each receive $20,000, taxed at the qualified dividend rate of 15%.

Why It Matters for Your Business

For business owners, dividends are a tax-efficient way to extract profits from a C-corporation, and understanding the tax treatment helps you choose the optimal compensation strategy.

More Investing Terms

Stock

A share of ownership in a company.

Bond

A debt security where the issuer owes the holder payment.

Mutual Fund

An investment vehicle pooling money from many investors.

ETF

Exchange-Traded Fund - a tradable investment fund.

Portfolio

A collection of investments held by an investor.

Related Financial Guides & Resources

Accounting 101 GuideFinancial Statements GuideTax Deductions GuideFinancial Reports Feature

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