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Dividends are the part of its annual profits that a company pays to its stockholders as income. That percentage is called the stock's payout ratio. Well-established companies are more likely to pay higher dividends than smaller or growth-oriented companies that often prefer to use their profits to fund additional expansion.

A per share dividend as a percentage of a stock's current price is the "yield" to the investor. Investors seeking income will typically look for stocks with above average dividend yields.

One consequence of earning dividends is that they are taxable, whereas price appreciation of a stock is not taxed until the stock is sold.

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