What is a Dividend?

After I getting my Finance & Investments degree and landing my first job at an investment bank, I finally was earning enough to start investing. 

As a young man, I was into technology companies because their stock prices usually went up rapidly, they went up rapidly. Of course they also went down rapidly. I was more of a trader back then. Starting my investment career as an equity trader probably had a lot to do with that!

One of the biggest setbacks to trading is missing out on dividends. This is what I missed out on for many years. 

If I could go back in time, instead of trading volatile stocks for my own account. I would invest in solid, blue chip companies that paid dividends and do hardly anything else.  Here and there, I think about what I should of done, what could of been and the time that has gone by.

Today as a "retired" adult, the majority of my investment portfolios have blue chip companies that pay dividends. Ha Ha Ha.

Nowadays, I look forward to the income that comes in every month from various companies. One reason is because I use the income to pay for everyday expenses like utility bills. The other reason is because I get a cool feeling having companies give me money for owning shares in their company. 

This entry will be my basic introduction to Dividends.

What is a Dividend?

In investing, Dividends are distributions by a stock to its stock owners.

These distributions are paid in cash . I refer to these distributions as INCOME. 

This is how it happens:

With dividend paying stocks, the company will announce that they are going to pay a dividend to its shareholders. This usually is announced a few weeks before it happens.  

A typical dividend announcement will specify at least 3 things:
• the amount of the dividend;
• the record date - this date means you must own the stock at the close of business on this date  -  in order to get the dividend. 
• the payment date - which is the day you get your money. 

Here’s what a typical dividend announcement looks like. This one came on February 15, 2018 from Coke, a well known, long time blue chip dividend stock that I happen to own and drink its products. 

By the way, Coca-Cola Company has paid a quarterly dividend since 1920 and has increased dividends in each of the last 56 years. They already raised their dividend payout again this year. These means more income for investors!


ATLANTA-February 15, 2018-The Board of Directors of The Coca-Cola Company today approved the company's 56th consecutive annual dividend increase, raising the quarterly dividend 5.4 percent, from 37 cents to 39 cents per common share.
This is equivalent to an annual dividend of $1.56 per share, up from $1.48 per share in 2017. The first quarter dividend is payable April 2, 2018, to shareowners of record as of March 15, 2018.

The dividend increase reflects the board’s confidence in the company’s long-term cash flow. The Company returned $6.3 billion in dividends to shareowners in 2017, bringing to $41.5 billion the total amount given back to shareowners through dividends since Jan. 1, 2010.
This is what the dividend announcement tells investors:

The Amount of the Dividend — KO will pay its shareholders $0.39 in cash for each share that they own. So for every 100 shares you own of KO, your total dividend payout will be $39.
The Record Date — KO establishes a record date of March 15, 2018. As mentioned earlier, you own the stock at the close of business on this day in order to receive the dividend. 
The Payment Date — You get paid on April 2. You can either elect be paid with a check or have the money deposited into you investment account.

This is what the dividend announcement DOES NOT tells investors
and it's VERY IMPORTANT:

The Ex-Dividend Date 

The ex-dividend date is very important, because it determines who gets the next dividend. 

For the buyer of a stock:
• If you buy before the ex-dividend date, you’ll get the dividend.
• If you buy on the ex-dividend date or later, you will not receive the next dividend. 


For a selling of the stock:
• If you sell on the ex-dividend date, you’ll get the dividend, even though you no longer own the stock by the time the payout date rolls around.
• If you sell before the ex-dividend date, you will not receive the dividend. 


Ironically, many dividend announcements, like Coke's above, does not mention the ex-dividend date even though it is probably the most important thing for investors to know. You can find the ex-dividend date on many popular investment websites. 

The Stock’s Yield 

At you local bank, they will advertise that they are paying 1% interest on their savings accounts.
Dividend stocks do tell you this because the company does not control the yield. 

The yield is the ratio of that amount to the stock’s price, which is controlled by the market, not the company.

Let's say a stock  is paying $1.00 in total dividends this year. If its stock’s price is $10 per share, its yield would be $1 / $10, or 10%. But if its price is $20 per share, its yield would be $1 / $20, or 5%.

Importantly, the yield is a calculated figure that depends on the stock’s price. That’s why a company’s yield changes every day, because the stock’s price is changing every day in the market.

MY TAKE ON DIVIDENDS

I love them. Dividends are income. And income is something you get to keep no matter if the stock goes up or down. They also pay more money than having your money in a savings account or CD these days.

I look forward to getting this income each time to use to pay for my family's various expenses and to put in the bank for savings.




Disclosure: I am long KO

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My opinions and strategies of the are not intended to ever be a recommendation to buy or sell a security. The strategies I use have worked for me and it is 100% for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.

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