Dividends

What Are Dividends?

Dividends are profit distributions made by publicly traded companies to their shareholders. These distributions are made per share, so each person who invests in that company will receive an amount proportional to their shareholding.

In the US stock market, we have numerous companies focused on distributing dividends to attract investors, with the largest ones often found in prominent dividend funds like the S&P 500 Dividend Aristocrats (NOBL).

Which Stocks Pay Dividends?

All companies can pay dividends, but some choose not to distribute their profits so that they can be reinvested or used for cash generation, which can be beneficial for growth companies.

However, if you choose to invest in a company with this strategy, the growth of your capital will come in the form of stock appreciation. This means that to have this money in hand, you will have to realize your profits, in other words, sell your shares.

On the other hand, there are large companies that are already established in the market, making it difficult for significant increases in the values of their shares. These companies usually distribute a larger portion of their profits, thus entering in ranks of good dividend payers.

How to Receive Dividends?

Since this distribution is made by the company itself, we must first know where we are investing our money.

After investing in a company that pays good dividends, all you need to do is wait for a payment announcement. This announcement varies for each company and can be annual, semi-annual, quarterly, or even without a specified period.

As companies usually have dates when they commonly pay dividends, simply check the Investor Relations page of the company you are interested in (for this, search for "<company name> IR" on Google) and look for payments from previous years.

When a payment is announced, it comes with a record date and a payment date. The record date tells you the day you should have the shares in hand to receive the amount to be paid, and the payment date is the day that amount will be credited to your brokerage account.

How to Calculate the Expected Dividend

Let's suppose you own 10 shares of SGAZ on January 1, 2022. You like the company so much that you bought an additional 10 shares on January 20, 2022.

On February 1, 2022, you receive news of a dividend payment of $2.00 per share with a record date of January 10, 2022, and a payment date of February 15, 2022.

By February 15, it is expected that you will receive 10 * $2.00 = $20.00 in your brokerage account since on January 10, 2022 (record date), you hadn't yet purchased the additional 100 shares.

Dividend Yield

Dividend Yield is an indicator that shows whether a stock is paying good dividends or not in relation to the current price. We also have Yield on Cost, which makes the same comparison in relation to the price paid for the stock.

To learn more about Dividend Yield, click here.