What is a dividend and how do I receive it?

A dividend is a portion of a company's profits paid out to shareholders as a reward for owning the stock. When you own dividend-paying stocks, you'll receive these payments automatically into your investment account, typically quarterly (every three months), though some companies like Realty Income (O) pay monthly. The amount you receive depends on how many shares you own and the dividend rate per share.

What does "dividend yield" mean?

Dividend yield represents the annual dividend payment as a percentage of the stock's current price. For example, if a stock is priced at $100 and pays $4 in dividends per year, its dividend yield is 4%. Higher yields mean more income relative to your investment, but extremely high yields (above 7-8%) might signal potential problems with the company or dividend sustainability.

Why do some companies pay higher dividends than others?

Companies pay higher dividends for several reasons: they may be in mature industries with limited growth opportunities (like utilities or tobacco), they might have stable cash flows that exceed their need for reinvestment, or they could be structured specifically to distribute income (like REITs). Some businesses prioritize shareholder income as part of their corporate strategy, while faster-growing companies often reinvest profits instead of paying dividends.

Are dividend stocks safer than other stocks?

While no stock is completely safe, dividend-paying stocks from established companies tend to be less volatile than non-dividend stocks. Companies that consistently pay and raise dividends typically have stable business models, strong cash flows, and healthy balance sheets. During market downturns, these stocks often decline less than the broader market because their dividend provides ongoing value to investors regardless of stock price movements.

What is a Dividend Payment Date?

The Dividend Payment Date is the specific day when a company actually distributes dividend payments to eligible shareholders. To receive the dividend, you must own the stock before what's called the "ex-dividend date" (which comes before the payment date). Different companies have different payment schedules - most pay quarterly, some pay monthly, and a few pay annually or semi-annually.

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Han Tan | Market Analyst

Updated 2 days ago | Published at juin 18