Dividends on common stock
The common stock dividend yield is: (Equation)
Annual Dividend / Current Market Price
Key dates relating to dividends are:
Declaration date, Ex-Dividend Date, and Payable date
When are dividends normally paid to investors?
Quarterly
A dividend is
a portion of a company's net profit that is distributed by the company to its stockholders
On the date that a corporation declares a cash dividend on a common stock, it
becomes a liability on the balance sheet of the corporation
Dividends are typically paid in
cash but can be paid in the form of stock or property
Corporations are NOT REQUIRED to pay dividends to
common stockholders
Dividends on common stock are not
fixed and fluctuate depending on the profitability of the company
Cash dividends paid to investors are
fully taxable at the federal, state and local level generally at a rate of 15% (Qualified)
If a corporation increased the dividend payment to shareholders but the market price of the stock was NOT adjusted, then it would
have the effect of increasing the yield on the common stock.
a dividend must be declared by
the Board of Directors before the common stockholders are legally entitled to it
Declaration date
the date on which a dividend is declared by resolution of the Board of Directors of the corporation
Ex-Dividend Date
the date on which the stock begins trade without the dividend, therefore a buyer of the stock would NOT be entitled to the dividend if the stock was purchased on or after the ex-date
Stock dividends generally are NOT taxed until
the time that the shares are sold and profits and losses are realized