Dividend definition
Dividends are payments a company makes to share profits with its stockholders. They’re one of the ways investors can earn a regular return from investing in stocks.
Dividends can be paid out in cash, or they can come in the form of additional shares. This type of dividend is known as a stock dividend.
Dividend yield is the company’s annual dividend divided by the stock price on a certain date. Investors use the dividend yield to be able to accurately compare dividend stocks. Dividend payout ratios are also an important measure that tell you how much of a company’s income is put towards dividends versus reinvesting in the company.
But not all stocks pay dividends. If you are interested in investing for dividends, you will want to specifically choose dividend stocks. Companies that increase their dividend payments year after year are usually less volatile than the broader market. And the steady income from dividends can help smooth out a stock’s total return.
» Need a brokerage account? Check out our picks for the best online brokerages for dividend investing
Compare types of bank accounts
What is a lady bird deed?
Dividend definition
Still deciding on the right carrier? Compare Medicare Advantage plans
What to consider before getting World of Hyatt Credit Card
Key takeaways:
Microsoft Office Excel budget templates
1. Make payments during residency
Delta SkyMiles American Express credit cards
Money market account vs. CD: The difference
Growth vs. value: What's the difference?
Best stocks by one-year performance
How much does a Gold’s Gym membership cost?
What is a savings account?
10 Best-Performing Vanguard ETFs
What does APY mean?
About Figo pet insurance
A few examples
What is the average cost of groceries per month?
Payday loans vs. installment loans
What is the typical down payment on a house?
Paying down your debt will take much longer
50/30/20 budget calculator
What does this value mean?
1. Thinking Medicare Advantage is Medicare
Why is having a low credit utilization important?
The best car insurance
Best-performing U.S. equity mutual funds
First, some background
California state income tax brackets and rates
Preparing to sell your car
What is GoodRx?
How do credit union loans work?
Average retirement savings balance by age
4 easy ways to start investing with little money
Is credit repair legal?
Last-minute cruise deals could offer savings
Reasons car insurance policies can be canceled mid-term
Why pay extra on car loan principal?
Late winter and early spring
What is an EIN?
1. Clean up your credit
1. There are two Merrick Bank credit cards
When is open enrollment for Medicare?
Who buys and sells life insurance policies?
1. Read check engine light codes
Best ways to consolidate credit card debt
Clinicians order unneeded tests for various reasons
How to consolidate your debt
When to use an FSA debit card
How does a lady bird deed work?
How we got here
What is a credit score?
The best term life insurance companies in April 2024
Value vs. growth stocks at a glance
What is the standard deduction?
What are Vanguard ETFs?
What is the 50/30/20 rule?
A closer look at Delta credit card offers
How to lower your credit utilization
When to choose a money market account over a CD
Are these the best stocks to buy now?
Who needs to get an EIN?
Why you need a savings account
What can you do during Medicare open enrollment?
CHASE SAPPHIRE RESERVE® OVER THE YEARS
Google Sheets budget templates
Cheap car insurance
Value investing defined
How whole life insurance works as an investment
Best car insurance in New Jersey overall: Travelers
What should my monthly grocery budget be?
What are dividend stocks and why buy them?
You’ll rack up bigger interest charges
Median retirement savings balance by age
Billing error
How to convert Skywards miles to dollars
2. Assuming your doctors are in network
How to pay extra on car loan principal
What you need to know about savings accounts
2. You may need an offer by mail to apply
How life settlements work
Best credit union personal loans for 2024
When will the auto market return to normal?
2. Switch to income-driven repayment
How we ranked the top life insurers
7 best stocks to buy now, according to analysts
What is a mega backdoor Roth?
Holiday weekends
2. Clear your check engine light
Who is GoodRx best for?
Dealing with your own cancellation
When to choose a CD over a money market account
How to choose the best mutual funds for you
Unnecessary diagnostics can trigger a cascade of tests and procedures
The pros and cons of a life insurance trust
Debt consolidation calculator
How do payday loans work?
Changes already afoot
What can credit repair services do?
How does the value of Skywards miles change when booking business class?
What is a credit limit and where can you find it?
How the standard deduction works
3. Get ready to pay some fees
Where to find the fine print
When to use a bank debit card
NerdWallet’s budget planner
3. Not checking your drug coverage
Growth investing defined
Savings accounts with strong APYs can help your money grow
2. Rebalance your debts and income
What can’t you do during Medicare open enrollment?
How do Vanguard ETFs work?
3. Track your car and driving
Figo pet insurance plans and coverage
Pros and cons of a lady bird deed
Your credit scores could suffer
When to choose a savings account instead
Is there a way to lower a monthly car payment?
When is whole life insurance worth it?
Mega backdoor Roth 2024
Choosing where to sell your car
How much will I get from a life settlement?
How to calculate APY
Episode transcript
Dividend vs. growth stocks
Median down payment by age
Where to get student loan help
How to find the best stocks to buy now
Best car insurance in New Jersey for your budget: Geico
What’s included in a Gold’s Gym membership?
Important dates
4. Teach your teen to drive
When debt consolidation is a smart move
Retirement savings by age
Best term life insurance policies for 2024
When is the best time to book with points on Emirates?
4. Buying for the dental benefits
Best car insurance companies: Our winners
All year
How to apply for an employer identification number
4. Neither card offers perks
Are Vanguard ETFs a good investment?
What harms can unneeded tests cause?
Regret or user error
How much does credit repair cost?
California income tax deadlines and extensions
How a savings account works: withdrawal limits
5. Boost your car’s performance
How does a life insurance trust work?
Why it's good to have both cards
How are dividends paid out?
The Federal Trade Commission’s budget worksheet
If you can’t afford more than the minimum, ask for help
What are the credit score ranges?
3. Seek loan forgiveness
What factors determine your credit limit?
How growth and value investing overlap
Average mutual fund return
Standard deduction 2023
What's available during Medicare open enrollment?
How to read the fine print
What are the potential drawbacks of GoodRx?
What's next
3. Don’t ask for too much cash
Potential pitfalls of life settlements
CASH BACK CREDIT CARDS
How do installment loans work?
How flexible are Emirates Skywards miles?
5. Looking at the premium only
How much does a Gold’s Gym day pass cost?
How much does it cost to buy Vanguard ETFs?
The more you know
How do you set up a lady bird deed?
Average down payment by state
4. Refinance to save on interest
How can I repair credit myself?
An alternative to chasing the best stocks
Your 401(k) plan allows after-tax contributions
How much should you spend on a mattress?
APR vs. APY: What’s the difference?
What’s not covered
6 types of dividends
How to find last-minute cruise deals
Standard deduction 2024 (taxes filed 2025)
Do I have to pay California state tax?
Best car insurance in New Jersey for customer satisfaction: NJM
5. There are no other Merrick Bank credit cards to graduate to
Is it a good idea to consolidate credit cards?
Find ways to stretch your grocery budget
Most popular cash back card reviews
More ways to take charge of your budget
Dissatisfaction
6. Buying because your friend has it
What is available credit?
How does Gold’s Gym fit into your budget?
What to ask before you sell your life insurance policy
Schumer box
How to talk to your doctor about tests
Get more help with monthly budget planning
Cards that earn Emirates Skywards miles
Your 401(k) lets you move your after-tax money
Mattress-buying tips
How much to keep in your savings account
Types of life insurance trusts
How does a debt consolidation loan work?
Other cash back card reviews
Investing in growth and value stocks
4. Consider a co-signer
Figo coverage options
How much can you save by booking a last-minute cruise?
How do you buy Vanguard ETFs?
Do debt consolidation loans hurt your credit?
Alternatives to a lady bird deed
Managing expectations
Standard deduction for those 65 or older
What is California's standard deduction?
How compound interest works
Credit union personal loan rates
How did NerdWallet determine the value of Skywards miles?
Best car insurance in New Jersey for ease of use: State Farm
Alternatives to savings accounts
Best Medicare Advantage plans
Sign-up bonus rules
When debt consolidation isn't worth it
Fraud
Credit limit and your credit score
Common misconceptions
You’ve got money left over for savings
How to sell your life insurance policy safely
Restrictions and waiting periods
What percent down payment do you need for a house?
What factors impact your credit scores?
What to consider before you begin investing
5. Live like a resident — even when you’re not
Considerations to make before booking a cheap cruise
What part of my income gets taxed by California?
Popular Vanguard ETFs
High-cost installment loans
The drawbacks of whole life insurance as an investment
5. Use collateral to secure the loan
Rewards program rules
Mutual fund fees
If you're considering World of Hyatt Credit Card
Do you ever need to change your EIN?
Is APY variable?
TRAVEL CREDIT CARDS
Figo pet insurance rates
How to get a loan from a credit union
'Holds' on a credit card
How long does it take to pay off medical school debt?
Bottom line
Am I a resident for California state tax purposes?
Full list of the best car insurance in New Jersey
Getting more offers can mean more money
Standard deduction for dependents
Where to find the best savings accounts
6. Find the right lender
General-purpose travel card reviews
Financial assistance without borrowing
How to evaluate dividends
What is the average and median retirement savings?
Next steps
What if you lose your EIN?
Qualification
Which type of life insurance should I put in a trust?
Can you lose money in mutual funds?
Why you can trust NerdWallet
Credit union vs. online lender
Factors that don’t affect your credit scores
When can't you take the standard deduction?
Other fine print
Pros and cons of increasing your credit limit
The bottom line
Discounts
What’s a good down payment for a house?
Anti-fraud preauthorizations
How to improve your credit
Vanguard ETFs: The bottom line
State availability
How much is my 2023 standard deduction?
The bottom line
What not to do
Airline credit card reviews
Last-minute cruises may not be for you if …
Next steps
Consumer experience
Additional help
How can I check and monitor my credit?
Are dividends taxed?
Last-minute cruise deals recapped
2023 vs. 2024 standard deduction
What if you spend more than your credit limit?
More about whole life insurance
California state tax credits
What is credit card consolidation?
Hotel credit card reviews
Next steps
When to claim the standard deduction
Figo vs. competitors
How does credit card consolidation work?
Why does your credit limit matter?
Credit cards for other travel brands
Is consolidating credit card debt a good idea?
Choose the best Delta credit card offer for you
Can I still use my credit card after debt consolidation?
CHASE SAPPHIRE PREFERRED® CARD OVER THE YEARS
OTHER REWARDS CREDIT CARDS
How to track your California state refund
Most popular
Cheapest car insurance by state
Others
California state sales tax
How to find the best term life insurance company
How we review pet insurance
5 things to know about California state tax
How to get cheap car insurance
BALANCE TRANSFER AND 0% CREDIT CARDS
Risks of getting cheap auto insurance
More about term life insurance
STORE AND RETAILER BRAND CREDIT CARDS
More about top-rated life insurance companies
Most popular retailer brand credit cards
Other retailer brand credit cards
Full list of the best car insurance companies
CREDIT BUILDER CREDIT CARDS
Secured credit card reviews
Best car insurance companies by state
Unsecured credit builder card reviews
How to find the best car insurance
COLLEGE STUDENT CREDIT CARDS
SMALL BUSINESS CREDIT CARDS
Most popular small business card reviews
Other small business card reviews
DEFUNCT OR UNAVAILABLE CREDIT CARDS
What are dividend stocks and why buy them?
Dividends on common stock — like any investment — are never guaranteed. However, dividends are more likely to be paid by well-established companies that no longer need to reinvest as much money back into their business. As a result, stocks that pay dividends can provide a stable and growing income stream.
Dividends are considered an indication of a company's financial well-being. Once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times. Investors often devalue a stock if they think the dividend will be reduced, which lowers the share price.
According to research from Fidelity, during periods of inflation, “stocks that increased their dividends the most outperformed the broad market, on average."
The most reliable American companies have a record of growing dividends — with no cuts — for decades. Examples of companies that pay dividends include Exxon, Target, IBM, Sherwin-Williams Co., and Johnson & Johnson. An elite list of S&P 500 stock companies called the dividend aristocrats have increased their dividend every year for at least 25 years. By comparison, high-growth companies, such as tech or biotech companies, rarely pay dividends because they need to reinvest profits into expanding that growth.
Advertisem*nt
NerdWallet rating 4.9 /5 | NerdWallet rating 5.0 /5 | NerdWallet rating 4.1 /5 |
Fees $0 per online equity trade | Fees $0 per trade | Fees $0 per trade |
Account minimum $0 | Account minimum $0 | Account minimum $0 |
Promotion None no promotion available at this time | Promotion None no promotion available at this time | Promotion Get up to $700 when you open and fund a J.P. Morgan Self-Directed Investing account with qualifying new money. |
Dividend vs. growth stocks
Learn more about the difference between dividend and growth stocks, and what they add to your portfolio.
How are dividends paid out?
Imagine you own 30 shares in a company and that company pays $2 in annual cash dividends. You will receive $60 per year. Here’s how it works.
A company earns profits.
The company’s board of directors approve a plan to share those profits in the form of a dividend. A dividend is paid per share of stock. U.S. companies usually pay dividends quarterly, monthly or semiannually.
The company announces when the dividend will be paid, the amount and the ex-dividend date. Investors must have bought the stock at least two days before the official date of a dividend payment (the "date of record") in order to receive that payment.
The company pays out the dividend to shareholders.
The ex-dividend date is extremely important to investors: Investors must own the stock by that date to receive the dividend. Investors who purchase the stock after the ex-dividend date will not be eligible to receive the dividend. Investors who sell the stock after the ex-dividend date are still entitled to receive the dividend, because they owned the shares as of the ex-dividend date.
6 types of dividends
Usually, dividends are paid out on a company’s common stock. There are several types of dividends a company can choose to pay out to its shareholders.
1. Cash dividends
The most common type of dividend. Companies generally pay these in cash directly into the shareholder's brokerage account.
2. Stock dividends
Instead of paying cash, companies can also pay investors with additional shares of stock.
3. Dividend reinvestment programs (DRIPs)
Investors in DRIPs are able to reinvest any dividends received back into the company's stock, often at a discount. DRIPs typically aren't mandatory; investors can choose to receive the dividend in cash instead.
4. Special dividends
These dividends pay out on all shares of a company’s common stock, but don’t recur like regular dividends. A company often issues a special dividend to distribute profits that have accumulated over several years and for which it has no immediate need.
5. Preferred dividends
Payouts issued to owners of preferred stock. Preferred stock is a type of stock that functions less like a stock and more like a bond. Dividends are usually paid quarterly, but unlike dividends on common stock, dividends on preferred stock are generally fixed.
6. Dividend funds
Investors who don't want to research and pick individual dividend stocks to invest in might be interested in dividend mutual funds and dividend exchange-traded funds (ETFs). These funds are available to a range of budgets, hold many dividend stocks within one investment and distribute dividends to investors from those holdings.
Customize your weekly reads
Tell us what's important to you and we'll curate a list of articles that match your interests.
How to evaluate dividends
An investor can use different methods to learn more about a company's dividend and compare it to similar companies.
As mentioned above, companies that can increase dividends year after year are sought after. The dividend per share calculation shows the amount of dividends distributed by the company for each share of stock during a certain time period. Keeping tabs on a company’s DPS allows an investor to see which companies are able to grow their dividends over time.
Dividend yield
Financial websites or online brokers will report a company’s dividend yield, which is a measure of the company’s annual dividend divided by the stock price on a certain date.
The dividend yield evens the playing field and allows for a more accurate comparison of dividend stocks: A $10 stock paying $0.10 quarterly ($0.40 per share annually) has the same yield as a $100 stock paying $1 quarterly ($4 annually). The yield is 4% in both cases.
Yield and stock price are inversely related: When one goes up, the other goes down. So, there are two ways for a stock’s dividend yield to go up:
The company could raise its dividend. A $100 stock with a $4 dividend might see a 10% increase in its dividend, raising the annual payout to $4.40 per share. If the stock price doesn’t change, the yield becomes 4.4%.
The stock price could go down while the dividend remains unchanged. That $100 stock with a $4 dividend might decline to $90 per share. With that same $4 dividend, the yield would become just over 4.4%.
Dividend payout ratio
Advisors say one of the quickest ways to measure a dividend’s safety is to check its payout ratio, or the portion of its net income that goes toward dividend payments. If a company pays out 100% or more of its income, the dividend could be in trouble. During tougher times, earnings might dip too low to cover dividends. Like a stock's dividend yield, the company's payout ratio will be listed on financial or online broker websites.
🤓Nerdy Tip
Be sure to check the stock's dividend payout ratio, or the portion of a company’s net income that goes toward dividend payments. Payout ratios are one measure of dividend health, and they are listed on financial or online broker websites.
Are dividends taxed?
All types of dividends are taxable. Dividends paid by U.S.-based or U.S.-traded companies to shareholders who have owned the stock for at least 60 days are called qualified dividends, and are subject to capital gains tax rates. All other dividends are subject to ordinary income tax rates.
Next steps
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
