Dividends are profits the company pays out to its shareholders. As a stock
holder, you are entitled to your share. The more shares you own, the more
percentage of the total profits you will receive. Companies usually do not pay
out 100% of its profits. The company retains some portion for future use,
usually in acquisitions or to rid debt. When you own a stock and you are
entitled to a dividend, you are most likely going to be paid in the form of
Dividends are set by the board of directors of each firm. You must remember, a
company is not obligated to pay a dividend. If the company is in financial
trouble, it can forfeit the dividend. The board of directors set the rate of the
dividend at a per share basis. They can declare of example $.20 per share. If
you owned 1000 shares of stock, you will get a check for 200 shares. Dividends
come in two types, fixed and variable. Fixed ratee are for owners of preferred
stock, while variable go to common stock holders.
There are four important dates to remember about dividends:
• The Declaration Date This is the date the board sets the dividend and
announces when the stockholders will get their checks. The board also announces
the Ex-Dividend Date, which is a very important date to know.
• Record Date This is the date when the company sets the list of
shareholders to receive the dividend. You must own the stock before this date to
get the dividend; however, it is the Ex-Dividend Date that is more important.
• Ex-Dividend Date This date usually falls 2 – 4 days before the Record
Date. This date allows for the completion of all pending transactions, since it
usually takes three days to settle a regular stock sale. The Ex-Dividend Date is
the most important date as far as owning the stock if you want to receive the
• Payment Date This is the date the company mails the checks, often two
weeks or so after the record date.