Let's talk dividends.

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Most of you know about dividends, but most people underestimate how important they are for being the crux of fundamental stock analysis.

Dividends are payments from a company to its shareholders, most commonly used to distribute earnings to the owners and investors of a business. The amount and frequency of dividends are decided on by the company's board of directors, who are elected by shareholders. For the average investor, dividends are the only way to earn a return by holding stocks; accordingly, dividend expectations are the key factor of a stock's intrinsic value.

The dividend payout ratio is the percentage of net profit paid out as dividends. The average dividend payout ratio varies across industries based on how much reinvestment a typical company requires to survive and grow in a given industry. The dividend payout ratio also fluctuates across the typical lifecycle of a business, starting at zero and rising as the company grows and stabilizes its market size. An early-stage company is wholly focused on reinvesting its earnings toward market penetration and revenue growth; a late-stage company has matured its market position and finally has the financial flexibility to reward the guiding work of its owners, usually comprising the founders, investors, and valued employees.