What Is a Dividend and How Is It Paid?

A company that has earned profits can keep them in the business or distribute part of them to shareholders. The decision is taken according to the company's rules and the law of its country. The amount is stated per share, so a holder receives that amount times the number of shares held, and each company sets its own schedule: some pay each quarter, some twice a year, some once a year and some not at all.

Four dates matter. The declaration date is when the dividend is announced. The record date determines which shareholders are on the company's books and entitled to receive it. The ex-dividend date is set from the record date by the exchange's rules: a buyer who purchases on or after that date does not receive the declared dividend. The payment date is when the money is paid out. On the ex-dividend date the share price normally opens lower by roughly the amount of the dividend, all else equal, because a new buyer no longer receives it.

The dividend yield is the annual dividend per share divided by the share price, so it changes whenever the price changes and is not a promise about future payments; companies can reduce or stop dividends. Price indices ignore dividends, while total-return indices add them back, which is why the same index can have two different values. Dividends are taxed under the rules of the investor's country, which this guide does not cover.