Explain dividends

[MaxPowers]

Can someone give me a quick explanation on what dividends are and when you get them? How do you tell when and how much dividends a stock is going to give?
What do you use to look at stocks? I use google.

[Broken Arrow]

Here's the definition.

As for when, I usually go to Yahoo Finance, type in a ticker, and look for the ex-dividend date. If you own their stocks before or on this date, you should qualify for the payout at the dividend date.

The dividend price is how much per share you will get paid.

The dividend yield is how much percentage per share it amounts to annually, divided by the number of payouts. For example, a dividend yield of 4%, paid quarterly, will only pay 1% each quarter, adding up to the 4% listed. Also, that percentage will change according to the changing stock's price.

Dividend date and ex-dividend date is something I don't think Google Finance lists yet.... If I want that information, I usually hop over to Yahoo Finance for it.

[jIM_Ohio]

Dividends are cash paid to investors (shareholders).

If a stock has a price of $10 and pays a $.48 dividend, it usually pays 1/4 of the dividend ($.12 in this example) each quarter. The dividend will be expressed as yield %(.48/10=4.8%).

In addition, the stock price decreases by the dividend price on the day the dividend is paid. So on the day the dividend is paid, the stock price is $9.88 and each share gets $.12 in cash. If the stock price rises to $13 the next quarter, when the dividend is paid the stock price would be $12.88 and each share gets paid another $.12.

In general if you see yields higher than 4% that is a sign of something significant. Might be financial distress for the company (a sign the dividend might be cut or eliminated) or a sign of a good value.

In general I look for dividends around 2-3%. There are other ratios to consider (payout ratio, cash and debt).

[Broken Arrow]

If a stock has a price of $10 and pays a $.48 dividend, it usually pays 1/4 of the dividend ($.12 in this example) each quarter. The dividend will be expressed as yield %(.48/10=4.8%).

The dividend is exactly how much it pays per share. The yield % formula is (dividend price / stock price) * number of payouts per year *100. (The 100 being the % adjustment.)

In addition, the stock price decreases by the dividend price on the day the dividend is paid. So on the day the dividend is paid, the stock price is $9.88 and each share gets $.12 in cash. If the stock price rises to $13 the next quarter, when the dividend is paid the stock price would be $12.88 and each share gets paid another $.12.

Huh? I don't think it actually works that way. The company can only set the amount of dividend they are willing to pay. The stock price itself is almost entirely subject to market forces.

In general if you see yields higher than 4% that is a sign of something significant. Might be financial distress for the company (a sign the dividend might be cut or eliminated) or a sign of a good value.

In general I look for dividends around 2-3%. There are other ratios to consider (payout ratio, cash and debt).

Yeah, watch out for this. High yield is usually a red flag that deserves some digging around before you buy.

[jIM_Ohio]

In addition, the stock price decreases by the dividend price on the day the dividend is paid. So on the day the dividend is paid, the stock price is $9.88 and each share gets $.12 in cash. If the stock price rises to $13 the next quarter, when the dividend is paid the stock price would be $12.88 and each share gets paid another $.12.

Huh? I don't think it actually works that way. The company can only set the amount of dividend they are willing to pay. The stock price itself is almost entirely subject to market forces.

This is correct- the stock price adjusts downward the day of the payout. Most of stock price movements are subject to ebs and flows of the market. The dividend payout is one thing the company has control over.

In most cases this is priced into the share by the market anyway.

This needs to be done so the market cap equation is calculated correctly- if a company is worth 5 billion before the dividend is paid, the cash to pay the dividend is included in the valuation of the company. If the company then pays some of this cash out, it needs it's market cap (market value) to reflect the subtraction from the cash on the balance sheet.

[tripods68]

A well run company like GE or and J&J reward their shareholders by issuing stock dividends quarterly.

Let's say you have 100 million shares of common stock The company has five investors who each own 200,000 shares. The stock currently trades at $100 per share, giving the business a Market Cap $100 million.

The Management decides to issue a 20% stock dividend. It prints up and additional 200,000 shares to common stocks (20% of 1 million) and sends these to the shareholders based on the current ownership. All of the investors own 200,000 or 1/5 of the company, so they each receive 40,000 of the new shares (1/5 of the 200,000 new shares issued).

Now the company has 1.2 million shares outstanding; each investor owns 240,000 shares. The 20% dilution in value of each share, however, results in the stock price falling to $83.33. Here's the important part: the company and (and our investors) are still in the exact same position. Instead of owning 200,000 shares at $100, they own 240,000 shares at $83.33. The company's market cap is still $100 million.