Dividends: Background for the Dividend Discount Model
Generally, there are two sources of return from investing in equities:
- (1) cash dividends received by an investor over his or her holding period and
- (2) the change in the market price of equities over that holding period.
A dividend is a distribution paid to shareholders based on the number of shares owned, and a cash dividend is a cash distribution made to a company’s shareholders. Cash dividends are typically paid out regularly at known intervals; such dividends are known as regular cash dividends.
By contrast, an extra dividend or special dividend is a dividend paid by a company that does not pay dividends on a regular schedule or a dividend that supplements regular cash dividends with an extra payment.
