Stock Dividends Explained
What is a stock dividend?
A stock dividend is the payment a trader obtains from the company he/she is presently investing in.
The company pays the dividend from the earning it acquired within its financial year. Hence, if the company does not make a profit, dividends are not likely to be given to the investor.
The dividend is generally paid in two parts, an interim and a final dividend. This means an investor who has shares in a company for one year; he or she will ordinarily obtain two lump sum payments annually (most often as cash payments).
To collect a dividend, you must have the stock before the ex-dividend date. The dividend is given to the investor on the payment schedule set by each individual company. The dates can be obtained from a company's official website in the investor relations section.
If you own 200 shares in a company valued at $10 each ($2,000 total) before the ex-dividend date and the company issues a dividend of $0.10, you will be paid $20! (($2000/$10)x$0.10).
By holding a stock before the ex-dividend date, you will be paid a dividend regardless of whether you have held it for 10 years, 10 months or 10 days!!
Note: Dividends are such a good source of a windfall or bonus that some traders only buy stock before the ex-dividend date and profit dividends rather than capital gains.
Find another great reason to trade stocks by checking out stop losses.
The dividend yield (in terms of common shares) is: the latest full-year dividend / current share-price. The figure is expressed as a percentage and informs traders the dividend they are likely to receive from trading a stock.
Here is how it can be illustrated simply:
- The share price of a company is $10
- The company gives a dividend of $0.30
- Hence, the dividend yield is 3%
- So, an investor who has 1000 shares (worth $10,000) will receive a $300 payout!