A:

First things first: a company with common stock that pays a dividend will typically distribute the dividend every quarter. However, the amount the company quotes is normally an annual figure. So, to calculate the amount you will receive each quarter, you will have to take the quoted dividend amount and divide by four. For example, if you own Cory's Tequila Corporation (CTC), which pays a $1 yearly dividend on a quarterly basis, you would receive $0.25 every three months.

That said, there are some things all investors should be aware of:

First, a stock's dividend yield will fluctuate with the market price. If CTC is trading at $10 and it pays the $1 dividend, its dividend yield is 10% ($1/$10). Now, if the price of CTC rises to $20 and it still pays the same dividend, the yield is only 5% ($1/$20). A change occurs in the yield any time the stock price changes, so don't mistakenly equate a change in dividend yield with a change in the payout you receive.

Second, companies are not required to pay dividends: this is a completely arbitrary action that the company decides itself. Granted, most companies will try to maintain a certain level of consistency with their dividend payout history to attract investors, but the payout can be changed at any time. Companies under financial stress might need to re-allocate money to different projects, or management may just change its mind and no longer want to pay a dividend. So, while a company's long-standing record of increased dividends is a good indication of payments in the future, the dividends aren't guaranteed.

If you are interested in learning more about dividends, check out these introductory articles: How and Why Do Companies Pay Dividends?, The Importance of Dividends and How Dividends Work for Investors.

RELATED FAQS

  1. Which stocks in the wholesale sector pay the highest dividends?

    Learn which wholesale sector firms pay the highest dividends and why investors analyze companies' financial health when dividend ...
  2. How can I check to see if an ETF’s price reflects its asset value?

    Learn how an investor can find the net asset value for an exchange-traded fund and why the net asset value and market value ...
  3. How does a company decide when it is going to split its stock?

    Learn why some companies decide to split their shares, and understand how they think it helps the stock's liquidity and future ...
  4. Which insurance companies pay the highest dividends?

    Understand which companies in the insurance sector pay the highest dividends to investors, and learn how dividends can enhance ...
RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...
  3. Policyholder Dividend Ratio

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

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

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

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

You May Also Like

Related Articles
  1. Investing Basics

    Which insurance companies pay the highest ...

  2. Mutual Funds & ETFs

    5 Dividend ETFs with Growth Potential

  3. Investing

    Feeling Risk-Averse? Consider These ...

  4. Fundamental Analysis

    Is it Wise to Diversify with Small-Caps?

  5. Fundamental Analysis

    Young Investors: Should You Care About ...

Trading Center