Quarterly dividend what is

There are three key dates to know when it comes to dividends: the declaration date, the ex-dividend date and the payment date.

In general, if you own common or preferred stock of a dividend-paying company on its ex-dividend date, you will receive a dividend. Dividends are also more common in certain industries, such as utilities and telecommunications. Many companies pride themselves on paying dividends regardless of market conditions or other factors. Many investors, particularly retirees, may try to invest primarily or solely in such dividend-paying stocks.

On average, dividend-paying stocks return 1. Dividend stocks do not offer the same security of principal as savings accounts, though. Because they often own dividend stocks, mutual funds and exchange-traded funds ETFs may distribute dividend payments to their shareholders. A real estate investment trust REIT owns or operates income-producing real estate. These traits make REIT stocks attractive choices for investors who want reliable dividend income and high yields.

REITs offer an average dividend yield of 3. REITs focusing on certain sectors, like mortgages, may even offer higher yields. There are two main types of stock: common stock and preferred stock. Everyday investors who invest in individual stocks usually hold shares of common stock. Even if a company has been paying common stock dividends regularly for years, the board of directors can decide to do away with it at any time.

Preferred stock, on the other hand, usually has a greater claim to dividends. These regular, set payments mean that preferred stocks function similar to bonds. Preferred stock prices are generally also consistent like bond prices and may not offer the potential for growth that most common stock does. However, in the event a company goes bankrupt, preferred stockholders receive payments before common stockholders.

Any company bondholders, however, are paid before preferred stockholders. Since dividends are paid as a set amount per share, it can be difficult to compare dividend payments across companies given their different share prices. Dividend yield provides an handy way to measure and compare which stocks pay the most dividends per dollar you invest. Dividend yield lets you compare the value of dividends from different companies.

Stock XYZ, for example, might pay a higher quarterly dividend than ABC of 20 cents per share, for a total annual dividend of 80 cents. Qualified dividends receive preferential tax treatment that may be lower than your regular tax rate. The taxes you pay on qualified dividends is determined by your tax bracket:. Ordinary dividends are taxed at your regular income tax bracket, just like short-term capital gains or your paycheck.

A dividend reinvestment plan DRIP automatically purchases new whole or fractional shares of a stock when you receive its dividend. This is particularly helpful because it may increase the amount of dividends you receive in the future. Next time dividends are paid out, the amount you receive will be based on the new number of shares you have, which includes your share purchased last quarter using a DRIP.

Keep in mind that dividend yield is rarely consistent and may vary further depending on which method you use to calculate it. The primary reason to understand dividend yield is to help you understand which stocks offer you the highest return on your dividend investing dollar.

But there are a few other benefits to consider. The absolute dividend amount you receive per share is a less helpful metric because companies have widely varying stock prices. If a company chooses to raise its dividend—and therefore raise its dividend yield—this generally tells investors that the company is doing well since it can afford to pay out more of its profits to shareholders.

Generally speaking, older, more mature companies in settled industries tend to pay regular dividends and offer better dividend yields. Meanwhile, younger, faster-growing companies tend to reinvest their profits for growth instead of paying out a dividend.

When you reinvest your dividends, instead of cashing them out every year or quarter, your investment benefits from compounding.

Over time, compounding effects can drastically enhance your returns. In fact, an unexpectedly high yield could actually be a red flag. This might happen for a couple of reasons:. With that in mind, it can make sense to look for companies with lower, but consistent, dividend yields or to carefully invest only in high-dividend stocks that have solid financials and pay rates similar to others in their industry.

Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years. Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors.

With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. Select Region. United States. United Kingdom. Miranda Marquit, Benjamin Curry. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

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