Dividend

Corporations may pay part of their earnings as dividends to you and other shareholders as a return on your investment. These dividends, which are often declared quarterly, are usually in the form of cash, but may be paid as additional shares or scrip.

You may be able to reinvest cash dividends automatically to buy additional shares if the corporation offers a dividend reinvestment program (DRIP).

Dividends are taxable unless you own the investment through a tax-deferred account, such as an employer sponsored retirement plan or individual retirement account. That applies whether you reinvest them or not.

However, dividends on most US and many international stocks are considered qualifying dividends. That means you owe tax at your long-term capital gains rate, provided you have owned the stocks the required length of time.

Dividends on real estate investment trusts (REITs), mutual savings banks, and certain other investments aren't considered qualifying and are taxed at your regular rate.