Glossary
Dividend
A payment a company makes to its shareholders out of profits, usually in cash and often quarterly in the US.
On this page
A dividend is a share of a company's profits paid out to its shareholders. In the US most dividend-paying companies pay cash every quarter, a fixed amount per share set by the board of directors. Dividends are one of the two ways stocks reward owners, alongside a rising share price, and they are entirely at the board's discretion: they can be raised, cut or stopped.
Key dates
Every dividend has a timeline:
- Declaration date: the board announces the amount and dates.
- Ex-dividend date: you must own the stock before this day to receive the payment. Under the US one-day settlement cycle (T+1, since May 2024), the ex-date is normally the same day as the record date.
- Record date: the company checks its list of holders.
- Payment date: the cash arrives, often a few weeks later.
Dividends and taxes (US)
"Qualified" dividends, from most US companies and many foreign ones held long enough (more than 60 days in the 121-day window around the ex-date), are taxed at the lower long-term capital-gains rates. Ordinary dividends, including most REIT payouts, are taxed as regular income. Dividends paid in an IRA or 401(k) are not taxed when received.
What a dividend does and does not tell you
A long record of rising dividends usually reflects a mature business with steady cash flow. But a dividend is not free money: total value is the same just after the payment as before it, only split between cash and shares. A very high yield can also be a warning that the market expects a cut. The Dividend Payout Ratio shows how much of earnings the payment uses up.