What is a dividend?
In one line: A dividend is a payment a company makes to its shareholders, usually in cash, often every quarter, from its profits or reserves.
A simple example
A company pays a dividend of $0.50 per share every quarter. That's $0.50 × 4 = $2.00 a year.
If you own 100 shares, you get $50 each quarter, or $200 a year.
Dividend yield compares that payment with the share price. If the stock trades at $80: $2.00 ÷ $80 = 2.5%. If the price falls to $50 and the dividend stays the same, the yield becomes 4%.
A math example, not a promise. Companies can raise, cut or stop dividends at any time. Try your own numbers in the dividend calculator.
The dates that matter
- Declaration date: the company announces the amount and the dates.
- Ex-dividend date: you must own the shares before this day to get the payment.
- Payment date: the cash arrives in your account.
Why it matters
Dividends are one of 2 ways a stock can give back to its owners. The other is the share price going up. Many long-term investors reinvest dividends to buy more shares over time.
For traders, dividends matter around the ex-dividend date. On that morning, the share price often opens lower by about the size of the dividend. The value moved from the stock into the payment.
A common mistake
Chasing the highest yield. A very high yield often means the share price has dropped hard. The market may expect the dividend to be cut.
The other mix-up: buying just before the ex-date to "grab" the dividend. The price usually drops by about the same amount, and the dividend may be taxed. There's no free payment.
Questions
Do all stocks pay dividends?
No. Many companies, often younger or fast-growing ones, keep their profits to grow the business instead of paying them out.
How often are dividends paid?
Most US companies pay every quarter. Some pay monthly, twice a year, once a year, or make one-off special payments.
Do ETFs pay dividends?
Many do. An ETF that holds dividend-paying stocks usually passes those payments on to its holders.
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