Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
guaranteed regular income. Today fewer and fewer public companies practice dividend payments, and many of those who do, pay scant amounts or pay irregularly. Many older blue chip stocks such as GE continue to pay dividends, while newer ones such as Microsoft do not. But those companies who do pay dividends would have to be consistently profitable companies, otherwise they cannot afford it.
There are two types of dividends: cash and stock. Regular cash dividends are usually paid quarterly. The time of the dividend payments is pre-announced by the company. Also announced prior to each dividend distribution is the "record date" which is the last date a person can invest in the company and receive dividends. Anyone buying shares after the record date will not receive the dividends announced for that period; of course, he would qualify for the next round if he holds on to his shares. The day after the record date, prior to market open, the stock's value is reduced by the dividend amount and the stock becomes "ex-dividend." For example, if the Ford stock value is $50 at the closing of the record date with dividends declared at $0.50 per share (for the current quarter), the stock would open at $49.50 the next day after the record day. The stock is considered ex-dividend until the dividend is paid out, which may be several weeks from the record date. The board of directors of each company usually sets the dividend amount, which is a certain amount of cash for each share owned. It could be any amount, from one cent per share to many dollars per share. It all depends on the board of directors and their degree of willingness to reward the shareholders based on the company's earnings.
To measure the return on investment on a dividend-paying stock, the "yield" expression is used. Just like yield in bonds, the stock yield is calculated by dividing the price of the common share into the annual per share dividend and is expressed in percentage terms. For example, with the Ford stock having annual dividend per share of $2 (50 cents …
Table of Contents