Dividends are a portion of the profits earned by a company, which the company may distribute to their stockholders. Not all companies pay dividends. Young, quick-growing companies may choose to reinvest all their profits in further company growth, spending the money to hire new employees, buy new machinery, or develop new business ideas. However, older, more-established companies often pay regular dividends — usually four times a year — to their shareholders, calculated on the basis of so many cents per share owned. For example, if a company decides to pay its shareholders a dividend of 50 cents per share, an individual who owns 200 shares of that company’s stock will receive a check for $100. When a mutual fund owns stock, the fund receives the dividends and distributes them to investors, usually in the form of additional fund shares. Thus, the value of your mutual fund investment grows when the stocks owned by the fund pay dividends.
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