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.

  1. Which is better a cash dividend or a stock dividend?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: ... Read Answer >>
  2. Can dividends be paid out monthly?

    Find out if stocks can pay dividends monthly, and learn about the types of companies most likely to do so and how monthly ... Read Answer >>
  3. Where can I find the past record dates for a company's cash or stock dividend?

    Learn more about dividend record dates and how they are used to determine the recipient of dividends. Find out how to locate ... Read Answer >>
  4. How and when are stock dividends paid out?

    Learn about why, when and how companies declare and issue dividend payments to common stock shareholders. Also learn the ... Read Answer >>
  5. How do dividends affect retained earnings?

    Find out how distribution of dividends affects a company's retained earnings, including the difference between cash dividends ... Read Answer >>
  6. How are dividends usually paid out?

    Discover the two compensation methods commonly used by companies and mutual funds to make dividend payments on equity investments. Read Answer >>
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  6. Forward Dividend Yield

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