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
- Research companies with consistent dividend payment history
- Look for sustainable payout ratios (typically 40-60%)
- Consider dividend growth rates, not just current yield
- Diversify across different sectors
- 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