Legal Definitions - dividend income

Dividend income refers to the money an individual or entity receives from owning shares (stock) in a corporation when that corporation distributes a portion of its earnings to its shareholders. Essentially, it is the profit-sharing payment made by a company to its owners (shareholders).

• Example 1: Publicly Traded Company

  Sarah owns 500 shares of a large, publicly traded pharmaceutical company. At the end of a successful quarter, the company's board of directors announces that it will pay a dividend of $0.75 per share to all shareholders. Sarah receives a payment of $375 (500 shares * $0.75/share). This $375 is her dividend income.

• Example 2: Investment Fund Distribution

  Mark has invested in a mutual fund that holds a diversified portfolio of stocks from various companies. Throughout the year, many of the companies within the mutual fund's portfolio pay dividends to the fund. The mutual fund then collects these dividends and, as per its policy, distributes a portion of these aggregated earnings to its own investors. The payment Mark receives from the mutual fund, which originates from the dividends of the underlying companies, is considered his dividend income.

• Example 3: Private Family Business

  The Rodriguez family owns a successful, privately held catering business. After a particularly profitable year, the family members, who are also the company's shareholders, decide to distribute a portion of the year's net profits among themselves based on their ownership percentages. The cash payment each family member receives from this profit distribution is their dividend income from the family business.