1. In general, a company can choose to initiate, suspend, raise, or lower its dividend at any time. Dividends are not guaranteed.
2. However, as cash payments, dividends are non-refundable. Unrealized capital gains can disappear if a stock falls, but the minute a dividend is deposited into your brokerage account, it’s yours to keep.
3. Dividends are the only way you can make money from stocks without losing ownership.
4. Dividends are usually paid in quarterly installments.
5. Some companies also issue “special” one-time dividends. For example, if a company sells off a portion of its business, it might choose to distribute the proceeds to investors.
6. A stock’s indicated dividend (also known as the “current dividend”) is the amount an investor should receive over the next year. For example, if a stock currently pays a quarterly dividend of $0.25 a share, its indicated dividend is $1 a share. Special dividends are not included in the indicated dividend.
7. Investors will often talk about a stock’s yield. The concept is similar to bond yields – i.e. yield is equal to the annual regular dividend payment divided by the stock’s current price. A yield is always expressed as a percentage. For example, a $10 stock that pays an annual dividend of $1 a share has a 10% yield.
8. Unlike earnings or sales, a dividend is not an abstract accounting construct. A company only has two choices: pay the dividend or don’t. This is an important fact: If a company doesn’t have the money, it cannot cover its dividend.
9. Historically, stocks that pay dividends are less volatile and have weathered bad markets better than their peers that don’t pay dividends. For example, in 2002 – the worst year for stocks in decades – the S&P 500 fell 23%. Dividend payers in the S&P 500 only lost 11% while nonpayers fell 30%!
10. As part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the tax rate on most stock dividend payments was lowered. For most people, the tax rate on qualified dividends is now 15%. An extension, signed in May 2006, guarantees this rate through 2010.
Popular Posts
-
Realty Income (O) stock reached an all-time-high of $82.29/share in February 2020, or about five years ago. Today, the stock is selling at $...
-
I review the list of dividend increases every week as part of my monitoring process. Dividend increases provide signaling value to me in my ...
-
As a shareholder, there are two ways to make profits from a stock. The first way is when you sell your stock for a gain, after it has incre...
-
I came upon an interesting story about another dividend investor, this time a famous actor. This is Sean William Scott, who starred in such ...
-
I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing positions. I a...
-
I am a big fan of diversification. That doesn't just mean owning a lot of companies however. It means spreading the risk. You need to un...
-
I tend to focus my attention on companies that regularly increase dividends to shareholders . A long history of annual dividend increases is...
-
I review the list of dividend increases every week as part of my monitoring process. Dividend increases provide signaling value to me in my ...
-
I was reviewing my old files and re-visited an interesting paper from Standard & Poor's from a few years ago about the importance of...
-
In terms of a somewhat succint summary, it is good to think in terms of trade-offs in the full picture. The expected returns formula I use r...
