What Are Dividends and Special Dividends?

A dividend refers to the distribution of cash from a company's profits to its shareholders as a dividend payment. Typically, after the end of each fiscal year, the company decides whether to pay dividends based on its profitability, as well as the amount and rate of the dividend. The purpose of dividends is to return a portion of the company's profits to shareholders in cash as a return on their investment.

A special dividend is an additional one-time dividend paid to shareholders outside of the regular dividend schedule due to certain special reasons. Such dividends are usually irregular and may be substantial in amount. They are typically declared when a company experiences specific circumstances, such as asset sales, extraordinary profits, or excess cash reserves, to reasonably distribute these earnings.