A:

A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, and paid to its shareholders of record on a specific date. Investors often view the company’s dividend by its yield — a measure of the dividend in terms of a percent of the current market price.

How Are Dividends Received?

After being declared, 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 it 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 percent ($1/$10). If the price of CTC rises to $20 and it still pays the same dividend, the yield is only five percent ($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.

Secondly, companies are not required to pay dividends. This is a completely arbitrary action that the company decides itself. 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: Why Dividends Matter and Put Dividends to Work in Your Portfolio.)

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