A distribution of a company’s earnings to its stockholders on a proportional (pro-rata) basis, as decided and announced by its management.

Dividends constitute a share of a company’s net profits paid to its stockholders in accordance with their holdings of its share (shares outstanding). The dividend payment is a fixed amount for each share of stock outstanding. Although the most common method of dividend payment is in cash or checks, other forms of payment include scrip (a promissory note to pay cash), property, or stock. Unlike interest on debts and other similar liabilities, which is obligatory, dividends must be first agreed on by the company’s directors before each payment.

A company can express dividends in two different ways: (1) as a percentage of the par or stated value of the stock or (2) as a dollar amount per share. For example, dividends may be expressed as 2% of the par value of a share of stock. If the stock price is currently $105, then it pays $2.1 in dividends. Alternatively, a company may declare dividends in monetary terms; say $2 per each share. In general, the financial press reports dividends as a dollar amount per share.