How Often Are Dividends Paid to Shareholders? (2024)

Investing

Mar 31, 2023

What are dividends?

Dividends are shares of a company’s profits, which are paid to its shareholders in proportion to the number of shares they own. Companies that pay dividends do so as a reward for investing, or as an incentive to attract new investors because selling stock raises cash for the company. In the U.S., companies paid dividends totaling $574.2 billion in 2022.

When a company announces a dividend, it’s expressed as a dollar amount per share. For example, Coca-Cola’s March 2023 quarterly dividend was $0.44 per share. The total dividend an investor receives is proportional to their investment in the company; the more shares they own, the greater the dividend payment.

Not all companies pay dividends, and companies that pay dividends are free to increase, decrease, or even eliminate dividends. It’s not common for companies to decrease or eliminate dividends, but it does happen. The class of an investors’ stock can also affect dividends.

How do I find companies that pay dividends?

If you want to earn dividends on your investments, keep in mind that not all companies offer them, so you’ll want to do your research; stock charts can give you this information. Here are some common themes among companies that pay dividends you may want to keep in mind when you do your research:

• Established companies are more likely to pay dividends. Long-standing companies with predictable revenue streams often pay dividends. That includes oil and gas producers, automakers, pharmaceuticals, consumer goods businesses, and so on. These businesses, while often solidly profitable, may not be growing fast, so their stock may not gain value rapidly. They might choose to ice the cake with dividends to attract investors.
  
• New or rapidly growing companies are less likely to pay dividends. Tech startups and fast-growing businesses don’t always have a lot of spare cash to pay dividends; they need to invest their profits into growing the business. And their shareholders hope to make money when the stock price spikes, so dividends may be less important to them.

Some companies don’t pay dividends until they become dependably profitable. Some of the largest companies in the market, including Facebook, Google, and Amazon, don’t pay dividends. In fact, because dividend availability is closely tied to factors that affect a stock’s volatility, you’ll likely find that a diversified portfolio includes a mix of stocks that pay dividends and those that don’t.

Note that companies that pay dividends are free to increase, decrease, or even eliminate dividends. It’s not common for companies to decrease or eliminate dividends, but it does happen.

How often are dividends paid?

Many companies have a regular schedule of dividend payment frequency. There’s no requirement for how often dividends are paid, so it’s up to each company. It’s also possible to pay unscheduled dividends, which may be special or additional dividends.

That said, most U.S. companies that pay dividends do so quarterly, though some dividends are paid monthly or semi-annually. Foreign companies, on the other hand, may not follow a regular cadence for dividend payments. And if you own dividend-paying stock via a mutual fund or exchange-traded fund (ETF), you’ll likely receive dividend payments quarterly or annually.

Each company has a dividend calendar, and there are four important dates to keep in mind for each dividend payment period:

• Declaration date: The date the company announces its next dividend payment.
• Ex-dividend date: The first day that new purchases of stock are not eligible for the announced dividend. This is sometimes called “trading ex-dividend.” You can still buy the stock, but you won’t receive the dividend for that period. If you want to receive it, the last day to purchase your stock is the day before the ex-dividend date.
• Record date: The business day after the ex-dividend date. In order to get the announced dividend, you must be “in the records” as a shareholder by this date.
• Payment date: The date the dividend is paid to shareholders.

Why do investors have to buy stock before the ex-dividend date? Well, there’s a two-business-day settlement period for buying and selling stock. So to be in the records as a stockholder, you must buy the stock at least two business days before the record date, which is the business day before the ex-dividend date.

Here’s an example, using Coca-Cola’s March 2023 dividend:

• Declaration date: February 16, 2023
  
• Ex-dividend date: March 16, 2023
  
• Record date: March 17, 2023
  
• Payment date: April 3, 2023

If you were researching Coca-Cola stock in late February 2023, you’d learn about the upcoming dividend payment on February 16, and you’d have had until March 15th to purchase stock if you wanted to receive it. Remember, the ex-dividend date is the first date that new stock purchasers are not entitled to the dividend. So if you purchased stock on March 15 (or any day prior), you’d have been “in the records” by March 17, and then you’d have received the dividend on April 3rd. But if you bought your stock on March 16, you’d have had to wait until the next quarter to receive a dividend.

Stock markets, brokerages, and investment management companies publish dividend calendars, and they are typically easy to find online, including the New York Stock Exchange and Nasdaq websites. Upcoming dividend information is also available in stock charts.

What’s a typical dividend amount?

Dividend amounts vary. The board of directors sets both the dividend amounts and how often dividends are paid; those decisions are then approved by shareholder vote. Factors can include the company’s performance, cash needs, and the price of its stock.
Investors often use a ratio called the dividend yield when evaluating dividends, rather than the dividend amount itself. The dividend yield is the annual dividend per share divided by the share price, and it’s typically easy to find online in a company’s stock chart. For example, the Nasdaq and Stash publish stock charts.

What happens after I receive dividends?

Regardless of how often dividends are paid by a company you invest in, you’ll have a few things to consider when you get that payment.

• Dividends you earn are taxable. The IRS splits dividends into two categories: ordinary and qualified. Ordinary dividends are taxed at your regular income tax rate, while qualified dividends are taxed at the lower capital gains rate.
• You can reinvest your dividends. Most dividends are paid out in cash. Many shareholders choose to reinvest their dividends by purchasing more stock, often by using a dividend reinvestment program (DRIP). With the power of compounding, that could add up to significant portfolio growth. Remember that there’s no guarantee that your investments will earn a return, and all investments carry the risk of losing money.

Investing in companies that pay dividends is one way investors might aim to earn a return on their investment. If it sounds good to you, remember that understanding a company’s dividend calendar is just as important as knowing how often dividends are paid so you can make stock purchases in time to earn them. And once you get those payments, be sure to plan ahead for taxes, as well as what you’ll do with the money. If you invest with Stash, you can enable DRIP to automatically reinvest your dividends so you keep your money working for you.

¹Expected returns or probability projections are hypothetical in nature and may not reflect actual future results.This is a hypothetical illustration of mathematical principles, is not a prediction or projection of performance of an investment or investment strategy, and assumes an initial contribution of $100, monthly contributions of $50 at an annual rate of return (compounded monthly) of 5.25% for the time period of 10 years and does not account for fees or taxes. It is for illustrative purposes only and is not indicative of any actual investment. Actual return and principal value may be more or less than the original investment.

²Not all stocks pay out dividends, and there is no guarantee that dividends will be paid each year.