Dividends are regular (typically quarterly or half yearly) distributions of a portion of a company’s profits to its shareholders, as determined by its board of directors. Stock dividends can provide an useful source of investment income, especially in the current environment of ultra-low interest rates and bond yields.
They also have the added advantage of being able to grow over time, typically protecting an investor from the erosive influence of inflation. Being a flexible payment, however, means that dividend cuts can also occur if a company finds itself unable to maintain a historic level of dividend payment. Consequently, it is prudent for investors to pay as much attention to the sustainability of a dividend payment as it is the dividend yield that is on offer.