When a listed company earns a profit, its board can decide to distribute part of it to shareholders as a dividend, instead of reinvesting the entire profit back into the business.
Cash dividend vs. stock dividend
- Cash: the most common option, paid directly into the investor's account.
- Scrip dividend: the company issues new shares instead of (or alongside) cash.
Dividend yield
It's calculated by dividing the annual dividend per share by the share price. It's a useful metric for comparing companies, but a very high yield can be a sign of a depressed price due to business problems, not necessarily a good opportunity.
Taxation
In Spain, dividends are taxed as investment income within the savings base of IRPF (Spain's personal income tax).