What Is the Difference Between a Dividend Rate & Dividend Yield?

A dividend is money paid to investors in a company. Some companies choose to pay dividends while others do not. Historically, dividends are paid on a quarterly or annual basis. However, some companies choose other payment structures.

The dividend rate is the dollar amount per share of the most recent dividend paid.

The dividend yield is a percent yield calculated by taking the indicated dividend rate and dividing it by the current stock price, multiplied by 100.

Deciding whether to purchase stock in a company that pays dividends is up to the investor. Receiving a dividend is good for the investor because it provides a guaranteed return on investment. However, companies that offer dividends are generally well-developed companies with smaller growth potential. Furthermore, a company that offers dividends does not use that money to reinvest into the company, thereby further limiting growth potential. As a result, stock in companies that offer dividends often provides smaller returns to the investor.