What Is a Dividend?
A dividend is a payment a company makes to its shareholders, usually from its profits. Most dividends are paid in cash on a regular schedule, such as quarterly, though some companies pay none at all.
The key dividend dates
| Date | What it means |
|---|---|
| Declaration date | The company announces the dividend amount and dates. |
| Ex-dividend date | You must own the shares before this date to receive the dividend. Buy on or after it and the seller gets the payment. |
| Record date | The company checks its register to see who is owed the dividend. |
| Payment date | The dividend is paid to shareholders. |
In the US, since trades started settling one business day after the trade (T+1) in May 2024, the ex-dividend date and the record date are normally the same day.
What happens to the share price
On the ex-dividend date, the share price typically opens lower by roughly the dividend amount, because new buyers no longer get that payment. That’s why buying just before the ex-date only to collect the dividend doesn’t usually produce a free profit.
Dividend yield and payout ratio
Dividend yield = Annual dividend per share ÷ Share price × 100 Payout ratio = Dividends ÷ Earnings × 100
A $50 share paying $2 a year yields 4%. The payout ratio shows how much of its profit a company pays out; a very high ratio can mean the dividend is hard to sustain. A very high yield can also be a warning sign, since it often follows a falling share price.
Other types
- Special dividends: one-off payments, often after an unusually good year or an asset sale.
- Stock dividends: paid in extra shares instead of cash.
- DRIP: a dividend reinvestment plan automatically uses dividends to buy more shares.
Estimate income and reinvestment growth with the dividend calculator. Many ETFs also pay dividends from the stocks they hold.
Educational explanation only. ChartWatch is independent and doesn’t give trading or investment advice. Trading carries a risk of loss.
FAQ
What is a dividend?
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