So here's the thing with the stock market if you own stock in a company you actually own a tiny little piece of that company in what's called a share.
one of the greatest things about owning stock is that some of these companies share their profits with their shareholders through dividends.
most companies will issue dividends four times a year or once every quarter.
essentially if a company pays out a dividend four times a year you're going to get paid four times a year just for owning that stock.
HOW DIVIDENDS WORK?
let's pretend that you own a hundred shares and Ford Motor Company and they declare a dividend of fifteen cents a share.
well with those hundred shares being fifteen cents a piece you're gonna make fifteen dollars right then and there just because you own a hundred shares and Ford.
that's only one of the payments they're gonna pay you another three times during the year for owning those shares as well and a lot of the time the dividends will actually go up a little bit over time.
here's something for you Warren Buffett owns 400 million shares of coca-cola and Coca Cola's last dividend payout was 37 cents a share.
so in that quarterly payment alone Warren Buffett would have received a hundred and forty eight million dollars just because he owns that many shares in coca-cola.
you see why dividends might be worth considering now keep in mind that dividends are not guaranteed.
the board of directors might at some point just say we want to do dividends anymore.
so you as a shareholder won't be receiving them. just do your research on the company's dividends before you invest in them.
check the history of the dividends so how long they've been issuing them how much and if they've gone up all those kinds of things will help you make an informed decision on whether or not you want to invest in that company based on their dividends.
here's an example of Coca Cola's dividend history. apparently they've been paying out dividends since nineteen seventy four times a year all the way up until today.
I would bet they're probably gonna continue doing so in the future. so how do you know if a company pays out a dividend? it's easy you just have to check some quick stats and then you'll know right off the bat if they issue a dividend or they don't.
TICKER SYMBOL?
so the first thing you got to do is you got to figure out what the company's ticker symbol is so what the heck is a ticker symbol the ticker symbol is just the company's name on the stock exchange for example coca-cola is just Khao Ford Motor Company F Apple corporation AAPL.
if you're worried that you can't find the ticker symbol just google it you'll always find it.
I'm gonna use Ford here as an example again like I said they're ticker symbol is F on the stock exchange.
I'll quickly show you inside of my Robin Hood app what you're looking for when it comes to a dividend with Ford.
what does yield mean yield is actually really important because that's the percentage of money that the company's paying you on a yearly basis based on their current dividends.
so the 4.95 that you're looking at means that Ford is paying you 5% in dividend yield for holding their stock over the course of a year.
just for owning stock and Ford they're gonna pay you 5% a year in dividends.
every single company on this entire planet is trying to make a profit including Ford.
you're also assuming that their stock is gonna go up while you're receiving dividends.
how do you know when a stock is gonna be paid out. you just have to check a few things that I'll quickly go over.
DATES TO KEEP IN MIND
the first thing you've got to pay attention to is the Declaration date all that means is that the Board of Directors got together and they decided that they are going to pay a dividend.
how much it's gonna be and then it's been declared.
now the next thing you got to pay attention to is the x-dividend date. the X date is really important because you've got to make sure that you own the stock prior to that date in order to get paid a dividend.
if you want to take advantage of the dividend but you don't own any of that stock then just make sure you buy the stock one day prior to that X date.
that's all you have to remember just buy it one day before the X date and you'll get a dividend.
now once you've done this you just have to pay attention to the record date.
the record date is gonna happen two days after the ex-dividend date all these means is that all the shareholders at this point have been recorded to receive their dividends.
lastly, all you're looking for is the payment date and that is the magical day that you'll get paid your dividend. it's really easy.
just make sure that you pay attention to these four little things and you can get your dividends.
one more thing with this when I first got into investing I thought that if you bought into a stock right before the X date then you could get paid a dividend and then right after that you could get out of the stock so you could quickly make some money.
to keep things fair and honest in the market that tactic doesn't work. every time a company issues a dividend the stock is gonna drop by that amount so that it's fair.
the stock will mostly rebound back up but it's not gonna happen right on the X date.
PROS & CONS
now there are pros and cons to dividend paying stocks and non dividend paying stocks and I'll just go over a couple of those really quick.
the great thing about dividends is that when you get paid you can reinvest those into the same company or you can buy shares of other companies or you can buy lunch with the money.
great about dividends is that you have your choice of what you want to do with that cash. keep in mind that dividends are typically paid with really stable companies.
that's because their growth is usually slowed down a lot so they can pay you with some of their profits.
typically when you own shares in a dividend paying stock you're not gonna see the stock go way up like big growth companies do.
companies that don't pay out dividends are using that money to reinvest in their company therefore they'll typically have a lot more growth than dividend paying stocks.
sometimes that growth far outweighs a dividend payment. especially when they're growing like 50 a hundred a hundred and fifty percent a year those kinds of gains are insane compared to anything you'll get from dividend paying stocks.
with those kind of gains comes risk there's always gonna be risk when it comes to investing.
when it comes to dividend stock investing there's a lot less risk over there than there is in the growth stocks.
I like both types but honestly dividends are awesome. hopefully by now you know what dividends are and what they're all about.