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Dividend Basics

Understanding Dividends

Dividends are portions of a company's profits that are distributed to shareholders as a reward for their investment. Think of it as getting a share of the company's success on a regular basis.

Essential Dividend Concepts

Dividend Yield

A percentage that shows how much a company pays in dividends relative to its stock price. For example, if a $100 stock pays $4 in annual dividends, the yield is 4%.

Payment Schedule

Companies typically pay dividends on a:

  • Monthly basis
  • Quarterly basis (most common)
  • Semi-annual basis
  • Annual basis

Important Dates

  • Declaration Date: When the company announces the dividend
  • Ex-Dividend Date: The cut-off date to be eligible for the dividend
  • Record Date: When the company checks its shareholder list
  • Payment Date: When dividends are actually paid

Types of Dividends

  • Cash Dividends: The most common type, paid in cash directly to shareholders
  • Stock Dividends: Additional shares of stock instead of cash
  • Special Dividends: One-time payments outside the regular schedule

Getting Started with Dividend Investing

  1. Research companies with consistent dividend payment history
  2. Look for sustainable payout ratios (typically 40-60%)
  3. Consider dividend growth rates, not just current yield
  4. Diversify across different sectors
  5. Monitor company financial health regularly

Common Dividend Investing Mistakes to Avoid

  • Chasing the highest yields without considering sustainability
  • Ignoring company fundamentals
  • Failing to diversify dividend sources
  • Not considering tax implications