What is a dividend?

By | January 29, 2017

Dividend is the amount of free cash flow that the company pays back to its shareholders/owners. When it comes to free cash flow, the company has 2 main options to spend this amount of money, they can re-invest into current business to make a bigger return or pay back to shareholders via divined stocks.

Some investor prefer the option 1 which is company’s management team will re-invest free cash flow into current business, it can be spend more for R&D activities for more patent, invest in marketing & sales for better revenue, M&A to gain more market share. If the company paid dividend to investor then they have to use this money to invest by themselves and hopefully it bring back good return.

What is a dividend

Dividends and share buybacks do not change the foundational value of a company’s shares. Dividend payments must be approved by the shareholders and are managed by the board of directors.

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