Cash dividends are a share of a company's profits paid to shareholders in cash. For the long-term investor, they're a recurring income source alongside price growth.

How do dividends work?

When a company makes profits, the general assembly may decide to distribute part of them to shareholders. To receive the dividend you must own the share before the ex-dividend date.

Dividend yield

Dividend yield = annual cash dividend ÷ share price. Example: a 2 EGP dividend on a 40 EGP stock = a 5% yield. The higher the yield, the more income — but beware:

  • A very high yield may result from a falling price, not company generosity.
  • What matters most is the sustainability of the dividend, not one year's figure.

The dividend's effect on price

On the ex-date, the share price usually drops by roughly the dividend amount — value left the company as cash. So a dividend isn't "free profit"; it's converting part of your value into cash.

An income-investing strategy

  1. Look for companies with a stable dividend history and earnings growth.
  2. Check the company's ability to sustain it (earnings covering the dividend).
  3. Diversify across several companies and sectors.
  4. Reinvest dividends to grow the portfolio with compounding.

Learn the valuation ratios in the financial metrics guide, and how to find these stocks in dividend stocks.

This content is educational and not investment advice.