One way in which stock ownership pays a return is through dividends , the portion of a corporation's earnings that is paid to stockholders. To compute a stock's dividend yield, divide the amount of the annual dividend by the current price per share. Many common stocks and preferred stocks pay dividends.
Most companies make their dividend payments on a quarterly basis.
The amount and timing of dividend payments are at the discretion of the corporation's board of directors. There is no law that states a company must pay a dividend on its common shares, even if the company is profitable. The expected receipt of dividends is sometimes justification enough for investing in stocks, particularly if the yield on the investment exceeds the return afforded by saving accounts. Stocks that pay out a fairly generous dividend are known as income stocks. While dividends are important to many, most investors hope to gain an additional return in the form of capital gains .