Part 2/10:
One common criticism is that dividends aren't "free money" and indeed, they are taken from a company's profits. For example, if a company issues dividends, it typically distributes a portion of its earnings to shareholders, adjusting its stock price accordingly. Let's break this down.
Imagine a stock price at $100 before a company announces earnings of $5 per share, with plans to distribute $4 as a dividend. The stock price may inflate to $105 leading up to the ex-dividend date (when new shareholders do not qualify for the dividend). Once the ex-dividend date is reached, the share price typically drops by the amount of the dividend; in this case, to approximately $101.