What is a dividend?

By Yolander Prinzel AAA
A:

When a company makes a profit and decides not to reinvest the profit in the business, it can pay out a portion to each of its shareholders. This is called a dividend. When a company decides to pay out a dividend, it will announce it to the shareholders on a date called the declaration date. Investors are required to have owned the stock by a certain date (called the record date) in order to receive a portion. On the payment date, the company will generally issue either stock or cash to its shareholders.

The amount each shareholder receives depends on the amount of shares he or she owns. For example, if the dividend is 15 cents per share and you own 50 shares, your portion of the overall dividend paid will be $7.50. If the company is paying the dividend in shares, the corporation will generally determine what fractional percentage of a full share each owned share entitles stockholders to. For example, a company may decide that the dividend is one tenth of a share for every share stockholders own. If you own 100 shares it means you'll end up with 10 full shares as your dividend.

A stockholder doesn't need to do anything to get her dividend. It will be added to her brokerage or retirement account in the format dictated by the issuing corporation. If the stockholder has a reinvestment directive, then cash dividends will likely immediately purchase new shares. Otherwise, the cash might sit in the sweep account until it's invested. Cash dividends are taxed, so the investor should expect to receive a 1099-DIV at year's end.

RELATED FAQS

  1. What is the difference between a royalty trust and a master limited partnership?

    Find high-yield opportunities in natural resources through royalty income trusts or master limited partnerships, and learn ...
  2. How are blue-chip stocks similar to mutual funds and exchange-traded funds (ETFs)?

    Understand the primary differences between making investments in blue-chip stocks, mutual funds and exchange-traded funds ...
  3. Is it a good idea for a beginning investor to arbitrage the dividend calendar?

    Learn the trading strategy used for arbitraging the dividend and understand why this complicated, high-risk strategy is not ...
  4. How do I calculate yield of an inflation adjusted bond?

    Learn how to calculate the real yield of an inflation-adjusted bond, such as the U.S. Treasury inflation-protected security ...
RELATED TERMS
  1. Policyholder Dividend Ratio

    The policyholder dividend ratio is a measurement of the profitability ...
  2. Paid-Up Additional Insurance

    Additional whole life insurance that a policyholder purchases ...
  3. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. Payout Ratio

    The proportion of earnings paid out as dividends to shareholders, ...
  6. Retention Ratio

    The proportion of earnings kept back in the business as retained ...

You May Also Like

Related Articles
  1. Stock Analysis

    What’s The Highest Dividend-Paying Tech ...

  2. Investing

    Is Caterpillar Here To Stay?

  3. Investing

    Windstream's Strategy For Dividend Investors

  4. Investing

    Are You An Investor Seeking For More ...

  5. Investing

    How Gilead Sales Have Grown Conspicuously?

Trading Center