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What Is A Dividend | All Things Dividend Investing

  • SUW 

A dividend is a company sharing a piece of its money with you as a reward for owning stock in it. They are usually paid out quarterly, but different companies/funds can have different schedules. 

For example: 

A company has a 20 cent dividend yearly.

You own 100 shares of the stock.

You would make 20 dollars/year as the dividend, generally paid out as $5 four times in the year. 

Usually these are more established, older companies with stable profits and future expectations.

– Oil, Real Estate, Telecom etc

This is opposed to rapid growth companies and startups who don’t really pay dividends, because their money is being used to grow and build up market cap.

These dividends are usually in cash but can also be stock compensation, where they essentially give you more ownership as the dividend. 

Dividend yield%= annual dividend $/ Share Price $

So if you get an annual dividend of $20 and the share price is $200/share

Yield= 10%

Although this sounds good, a high dividend yield doesn’t necessarily mean a company is a good investment. Look at rest of the information about the company too, not just dividend yield.

Risk- are they on a good trajectory? Do they have a plan for the future?

Cash flow statement- do they have free cash flow to actually spend on dividends?

Is it a secure company? Past performance doesn’t mean future performance.

Pay Out vs Invest- why are they paying out so much? Can they not grow any more?

Other details:

Announcement date: when dividends are announced by company management on (or declaration date) and must be approved by the shareholders before they can be paid

Ex-dividend date: The date on which the dividend eligibility expires. For instance, if a stock has an ex-date of March 31, then shareholders who buy the stock on or after that day will NOT qualify to receive the dividend. Shareholders who own the stock one business day prior to the ex-date, or earlier, qualify for the distribution.

Record date: The record date is the cut-off date, established by the company to determine which shareholders are eligible to receive a dividend or distribution.

 As an example, a company that is trading at $50 per share declares a $2 dividend on the announcement date. As the news becomes public, the share price may increase by $2 and hit $52.

If the stock trades at $53 one business day before the ex-dividend date. On the ex-dividend date, it’s adjusted by $2 and begins trading at $51 at the start of the trading session on the ex-dividend date, because anyone buying on the ex-dividend date will not receive the dividend.

Payment date: when the company/fund issues the payment of the dividend 

Dividends paying stocks/funds are a great addition to your portfolios.

They give you a nice cash flow as the stock itself (hopefully) grows over time. 

There are a few different ways you can go about finding and adding them.

You can go to any stock organizer, and google “dividend paying stocks” then do your research.

There is also a fund of SNP Aristocrats which are companies that have been in the SNP 500 for 25 years and have been paying a dividend for that time.

Many general ETF’s also pay out dividends as well as REITS. 

DRIP which is a dividend reinvestment plan is great too, where the dividends you earn are automatically re-invested to buy more the stock. This way you are benefitting from dividends, and our usual, compound interest. 

I am not a trader. I am an investor. I only invest in ETFs and REITS.

I do not do individual stock trading and analysis, so I can’t speak to that.

How you want to approach this is up to you and depends on your risk tolerance, goals, interests, and time available. 

Till Next Time

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