A rookie question about stock dividends. In order to receive dividends in a stock, how long do you need to own that stock? For the entire quarter, the day of the payment, are there special dates defined, and how do you find out what they are for a particular company?

Where does the payment show up, re-invested in your stock, or does it just show up in your trading account, ex e-trade...




Thanks,

 

usually you can see it on the company's dividend release statement...

you can have it automatically re-invested if you're using DRIP or places like sharebuilder or buyandhold.com, but usually they just deposit the cash.

 

The date the company announces the dividend is what's called the declaration date. On that day they will also announce the ex-dividend date, which is the date that one must own the stock by in order to receive the dividend.

You can find the dividend and yield info on any finance site. look for the div/yield section of the summary. It will show you the dividend dollar amount and yield percentage.

You should be given a choice whether you'd like to re-invest the dividend or take the cash. Some online brokers may not allow less than whole share re-investment, so I'd check on that. If you choose to re-invest it's nice to be able to get fractional shares,

 

[QUOTE=apex17,Feb 7 2008, 06:38 PM]A rookie question about stock dividends.

 

thanks

 

Dividends are not free. When the dividend is paid out the price of the stock will drop by exactly the amount of the pay-out (plus normal price volatility). A dividend converts your stock value to cash. For example, a $10 stock paying a dividend of $1/share will be worth $10 the day before the payment date and worth $9 the day after. In other words dividends are not additive to your position. In order to actually gain from the dividend the stock price must rise back to the pre-dividend price.

A mistake of many unseasoned investors is thinking that companies hand out cash for free. This is not the case. A company growing earning at 5%/year and paying out 3% in dividends nets you a 2% gain. If you buy a $100 stock solely to get a $5 dividend payment you can expect to sell that stock for $95 the day after, a wash.

 

Remember what you are buying when you purchase a share of a company. If the company gives away a bunch of money, it's proportionally worth less. As cthree has mentioned, dividends aren't quite as magical as they seem. This doesn't take away from the fact the majority of wealth 'created' by the stock market is through dividends.

 

quick question to add on.

here's an example of McDonalds.

http://finance.yahoo.com/q?s=MCD

So the Div & Yield section, the 1.50 is the dollar amount that the shareholder will receive per share when the payment date arrives?

And what does the 2.80 % stand for.

Thanks.

 

The 2.8% represents the % of the stock price that is being returned to you as a dividend. I haven't looked at the yahoo page, but it is typically an annualized number, so would be 1/4 of that amount each quarter during the year. You'll note that the quarterly dividend is 37.5 cens per share -- making the total annual dividence $1.50/share. As the stock prices increases or decreases, the actual dividend may or may not be adjusted up or down accordingly, but the % of stock price that the dividend represents will adjust according to the stock price.

 

Quick note if you use etrade. By default you are setup to reinvest but have the option to opt out when you make a purchase. Otherwise you have to send a request to opt for cash at a later time.