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Dividends are when a company distributes a portion of its profits to its shareholders. If you don't know what the word 'shareholder' means, click here to watch part 1, and then come back to this video.
So anyways, say we own a share in a company, let's call this company Soni's Shawarma, and assume it's a restaurant chain that has thousands of restaurants across the country.
Soni's Shawarma is doing its thing, you know, selling great tasting shawarmas to people like you and me and making a profit. And since shareholders are owners, it makes sense that we get a part of this profit. Soni's Shawarma will distribute a small portion of its profit to shareholders, and this, is what we call a dividend. So let's say that Soni's Shawarma pays a quarterly dividend of 25 cents.
let's make this rectangle represent my one share of Soni's Shawarma. So with this one share, I will be getting 25 cents from Soni's Shawarma, every quarter year, which is 3 months. I get this 25 cents, for being a shareholder, which is not a laborious task, you just buy shares, and, well, chill, relax, continue on with your life, you get the point.
So this one share got me 25 cents, in 3 months. Say I hold this share for a year, and since this dividend is issued quarterly, that means I get 4 payments of 25 cents, so I've just gotten a dollar in dividends.
Realistically, it's very unusual for someone to invest in a company, and buy only 1 share, so say I have 100 shares of Soni's Shawarma, that means in a year, I make $100. Say I have a 1000 shares, in a year, that's a thousand dollars.
$1000 for what? $1000 for being a shareholder. So basically, chilling. (insert music here). Now the longer you chill, I mean, uhh, hold your shares for, the more money you will make. If 100 shares of Soni's Shawarma give me $100 in dividends every year, and I hold this company for 2 years, that's $200, if I hold it for 5 years, that's $500, if I hold it for 10 years, that's a $1000 and so on and so forth. In the real world, dividend paying companies usually increase their dividends often, so if you hold for a long time, the dividends will usually increase.
So before we end the video, you need to know a few things. Dividends can be paid in cash or in stock, which is when the company will issue extra shares instead of cash. But you can always sell those extra shares for money if you really want the cash that bad.
Next thing, not all companies pay dividends to their shareholders. These companies may be reinvesting every penny back into the business, or may not even be making a profit.
Last thing, companies can pay dividends quarterly, semi-annually, or annually. So that means once every three months, or once every 6 months, or once every year.
So that's about it, make sure to watch the online tutorial for checking dividends as a follow-up to this video. Thank you and goodbye!