Dividends and Yields
Ask the Fool
Q: What's a dividend? - S.M., Watertown, N.Y.

A: It's a portion of a company's earnings, paid out to shareholders. If Home Surgery Kits (ticker: OUCHH) earns $4 in profit per share, it might decide to issue $1 annually to shareholders, using the balance to build its business. If so, it will probably pay out 25 cents per share every three months. This may seem like peanuts, but it adds up. If you own 400 shares of a company that's paying $1.50 per share in annual dividends, you'll get $600 per year from the company. Plus, healthy companies generally increase their dividend amounts periodically.

Dividends are often expressed as yields. A company's dividend yield is its annual dividend divided by its current stock price. So a company paying $2 per year and trading for $50 per share would have a yield of 4 percent (2 divided by 50 is 0.04).

Q: What's a "beneficial owner"? - R.Y., Ashland, Ky.

A: The term refers to the true owner of a security, such as a stock. If some assets are held for you in a trust through a brokerage, for example, you're the beneficial owner. It's a common practice for brokerages to hold stocks in "street name" (i.e., their own name) instead of putting the shares in your name. This is routine, and the shares still belong to you - you're the beneficial owner. It often makes sense to leave shares in "street name" instead of having them registered to you and getting the actual certificates sent to you in the mail. When you're ready to sell, you won't have to dig up and mail back the certificates.

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