A dividend is a payment made by a company to its shareholders, usually from profits. Dividends are paid on a per-share basis. For example, if a company pays out $5 dividends quarterly, and you own 20 shares, you will receive $100 in dividends quarterly.
The dividend yield formula is:
\[ \text{Dividend Yield (\%)} = \left( \frac{\text{Annual Dividend}}{\text{Share Price}} \right) \times 100 \]
The dividend reinvestment formula is:
\[ \text{Final Balance} = P \left( 1 + \frac{r}{m} \right)^{mt} \]
Assume you invest $1000 in a dividend-paying stock for two years, with a dividend yield of 7% compounded yearly:
\[ \text{Final Balance} = 1000 \left( 1 + \frac{0.07}{1} \right)^{1 \times 2} = \$1,144.90 \]
This means a profit of $144.90 after two years, for a total of $1,144.90.