A type of dividends that are paid to a company’s shareholders, based on a dividend payment schedule, out of a company’s profits. These dividends may be received as cash dividends (via a check from the company), or they can sometimes be reinvested in additional shares of stock in the firm. This latter option occurs via a dividend reinvestment plan (DRIP), which always provides for the purchase of fractional shares and sometimes allows shareholders to buy these shares at a slight discount from the prevailing market price.

Securities may be held in your name or in a street name. If you buy stock registered in a street name, your name is not on the stock certificate; it bears the name of a Wall Street firm. Your brokerage firm holds the shares, and allocates the one large dividend check it gets on behalf of perhaps thousands of individual shareholders. Most brokerage firms automatically transfer any excess cash in an account into a money market fund of some type. This is a good arrangement because it reduces to a minimum the unproductive time for the dividends. If, instead, the portfolio manager receives dividend checks directly, she needs a temporary haven for these funds until they accumulate sufficiently to finance the purchase of more securities or until they are paid as income to the fund beneficiary. Most portfolio managers have some money market instrument available for this purpose.