If you're investing in dividend stocks, it's important to understand how and when a dividend is paid. In most cases, stock dividends are paid four times per year, or quarterly. There are exceptions, as each company's board of directors determines when and if it will pay a dividend, but the vast majority of companies that pay a dividend do so quarterly.
In addition to thewhen, it's also important to knowhowyou'll get paid. There are also several important dates to know that determine if you are entitled to the dividend. Keep reading for a breakdown of this important information that every dividend investor needs to understand.
Image source: The Motley Fool
How often are dividends paid on stocks?
How often are dividends paid on stocks?
The vast majority of U.S. companies that pay dividends issue the payout quarterly. There are some exceptions, including a handful of companies that pay dividends every month, most notablyRealty Income, which bills itself as "the monthly dividend company." Realty Income has paid a dividend every month for over 600 consecutive months, and is now a Dividend Aristocrat.
On rare occasions a company may issue what's known as a special dividend. Often this is the result of a large asset sale or some other event that results in a large nonrecurring profit, while other companies use a special dividend to return extra money to shareholders every few years. A notable example is Costco Wholesale(COST -2.47%), which has paid substantial special dividends three times over the past decade, in addition to its regular quarterly dividend:
COST Dividend data by YCharts
Important dividend dates to know
Important dividend dates to know
There are three important dates to understand if you invest in any dividend stocks:
- Theex-dividend dateis the first day a stock trades without the most recent dividend being factored into the share price. In other words, if you buy shares on or after this date, you will notget the next dividend the company is scheduled to pay.
- Thepayment dateis the date a company will make the next dividend payment to shareholders. This may or may not be the date that the dividend arrives in your account; depending on the brokerage you use, there could be a delay of a day or more in getting your dividend payment. The payment date can range from just a few days to more than a month after the board of directors declares a dividend is coming.
- Therecord dateis the date you must own shares on or before in order to be entitled to the dividend.
When do you have to buy a stock to get paid the next dividend?
When do you have to buy a stock to get paid the next dividend?
Here's an example of how this works in real time.Apple (AAPL -1.07%) declared a dividend -- that is, made a formal disclosure that the board of directors had approved a dividend -- of $0.82 per share on July 30, 2020. The payment date was Aug. 13, to shareholders of record on Aug. 10, meaning the ex-div date was Aug. 7 (the prior Friday, since Aug. 10 was a Monday).
Let's break that down: Apple paid a dividend of $0.82 per share on Aug. 13 to all shareholders of record as of Aug. 10. This is where the ex-div date comes in. In order to be entitled to the upcoming dividend you would need to have owned or bought Apple shares beforeAug. 7, the ex-div date for the upcoming dividend.
Here's a table of some popular dividend stocks to further illustrate these important dates:
| Company | Dividend Amount | Dividend Frequency | Declared Date | Record Date | Ex-Dividend Date | Payment Date |
|---|---|---|---|---|---|---|
| Apple | $0.82 | Quarterly | 7/30/2020 | 8/10/2020 | 8/7/2020 | 8/13/2020 |
| Coca-Cola(NYSE:KO) | $0.41 | Quarterly | 7/16/2020 | 9/15/2020 | 9/14/2020 | 10/1/2020 |
| AT&T(NYSE:T) | $0.52 | Quarterly | 6/26/2020 | 7/10/2020 | 7/9/2020 | 8/3/2020 |
| Realty Income(NYSE:O) | $0.2335 | Monthly | 8/18/2020 | 9/1/2020 | 8/31/2020 | 9/15/2020 |
To summarize: A company's board declares a dividend, to be paid on a certain date to shareholders of record as of a prior date. In order to be one of those shareholders of record, you need to buy or already own shares before the ex-div date, which is the business day before the record date.
How are dividends paid?
How are dividends paid?
In the vast majority of cases, dividends are paid in cash by the company to your brokerage, which puts the money in your account. Some companies offer direct stock investment plans, but with low-cost -- in many cases zero-commission -- trading available from most online brokers, there's minimal benefit to using this option these days.
As to thewhen, the dividends show up in your brokerage account on or within a few days of the payment date, depending on your broker. If you're counting on those dividends for income, it might take a few more days to transfer that cash out of your brokerage account and into your banking accounts, so factor the additional time in for budgeting purposes.
There are also some stocks that don't pay in cash, instead paying in more shares of a company's stock. This is rare, but it does happen, so make sure you verify whether you're getting a cash or stock dividend. Generally companies make it clear if the dividend is not being paid in cash.
Again, if you want cash -- either as dividend income or to invest in other stocks -- a stock dividend means it will take a little longer to get your hands on actual money. You'll have to sell the shares, then wait for the trade to settle -- several more business days -- before your broker will let you take the cash out of your account.
Related dividend stocks topics
Jason Hall has positions in Realty Income. The Motley Fool has positions in and recommends Apple, Costco Wholesale, and Realty Income. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
I'm deeply immersed in the world of dividend investing, where understanding the nuances of dividend payment structures and their impact on investment strategies is key. The article you provided does a solid job of outlining crucial aspects of dividends, including payment frequency, special dividends, and the significant dates tied to dividend stocks.
The frequency of dividend payments is a crucial factor for investors. The article mentions the standard quarterly dividends offered by most U.S. companies, with notable exceptions like Realty Income, which has a sterling record of paying monthly dividends for over 600 months, earning it the title of a Dividend Aristocrat.
It also touches upon special dividends, which are rare and typically tied to extraordinary profits from events like large asset sales. Companies like Costco Wholesale have issued such dividends periodically over the past decade.
Understanding key dates related to dividends is fundamental. The ex-dividend date signifies the cutoff for shareholders to be eligible for the upcoming dividend. The record date is the deadline by which investors must own shares to receive the dividend. The payment date is when the dividend is distributed, although its arrival in an investor's account might be delayed depending on the brokerage used.
The example with Apple's dividend declaration illustrates this well. Apple announced a dividend on July 30, 2020, with a payment date of Aug. 13, for shareholders of record on Aug. 10. Therefore, investors needed to own or purchase Apple shares before the ex-dividend date of Aug. 7 to qualify for that dividend.
As for how dividends are paid, most companies distribute cash dividends, credited to an investor's brokerage account on or shortly after the payment date. Some stocks, however, offer dividends in the form of additional shares of the company, although this is less common.
Understanding these concepts empowers investors to make informed decisions, especially if dividends play a significant role in their investment strategies. The article also briefly touches on related topics like Dividend Achievers, Dividend Kings, and calculating dividends, which delve deeper into dividend investing strategies and assessments of dividend-paying companies.
