<p>A <strong>dividend stock</strong> is a share of a company that distributes a portion of its earnings to shareholders on a regular basis, typically quarterly. Unlike growth‑oriented stocks that reinvest profits back into the business, <a href="/NewSite/encyclopedia/dividend/" class="ency-link">dividend</a> stocks provide investors with a steady stream of cash income in addition to any potential price appreciation. This characteristic makes them attractive to income‑focused investors, retirees, and those seeking lower volatility in their portfolios.</p>

<h2>How It Works</h2>
<p>When a company earns profits, its board may declare a dividend, specifying the amount per share to be paid. Important dates in the process include the declaration date, the ex‑dividend date (when new buyers are no longer entitled to the upcoming payment), the record date (who is on the shareholder register), and the payment date (when cash is transferred). The <a href="/NewSite/encyclopedia/dividend-yield/" class="ency-link">dividend yield</a>—annual dividend divided by the stock price—expresses the return as a percentage and helps investors compare income potential across different stocks. Many brokerages offer dividend reinvestment plans (DRIPs), allowing shareholders to automatically use payouts to purchase additional shares, compounding returns over time.</p>

<h2>Why It Matters</h2>
<p>Dividend stocks can provide a reliable income stream, especially during market downturns when share prices may fall but cash payments continue. They often belong to mature, financially stable companies in sectors such as utilities, consumer staples, and telecommunications. For example, an investor holding shares in a large utility company might receive a 4% annual yield, supplementing retirement income while benefiting from modest price growth. By combining income with potential capital appreciation, dividend stocks play a key role in balanced, long‑term investment strategies.</p>
<ul>
<li><strong>Dividend</strong>: the payment made to shareholders.</li>
<li><strong>Dividend yield</strong>: annual dividend expressed as a percentage of share price.</li>
</ul>