The dividend is a portion of earnings that is issued to the shareholders.  The board of directors will decide how much goes to which class of shareholders.  You must own the stock before the stocks ex dividend date in order to recieve your share on the dividend date.

Dividend funds drip into your investment account

Dvidend funds drip into your investment account

Dividends need not be cash, they can also be in the form of stock or property.

It is often generalized that low growth companies make up the return difference with dividends, though with careful consideration a low growth company picked up at a low price can offer good returns with the safety and stability of the dividend.

Most importantly you need to not look at the amount per share the stock is paying but the dividend yield.

Yield is calculated as -  [Dividend Per Share Per Year] / [Stock Price]

For instance you have two companies – Mega Bahemoth (Ticker: BIG) and Average Joes (Ticker: AVE).  BIG is priced at $100 per share and has a dividend of $2 per share annualy.

Average Joes is prices at $10 per share and has a dividend of $0.20 per share quarterly.  It’s easy to fall into the trap of thinking about which dividend is largest if that’s the income you are looking for.  First let’s calculate the yields.

BIG: [$2] / [$100] = 0.02 or 2%

AVE: [$0.80] / [$10] = 0.08 or 8%

You have to watch the payout on the dividend; in the case of AVE with the quarterly payout you have to multiply by 4 to get annual payout.

In this fictitious example the person investing in AVE will get 4 times more dividend income then investing in BIG!  Remember to watch those yields and keep learning more about the stock market.

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  3. Dividend Yield Definition and Ex Dividend Definition
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