Dividends

Panda09 · #1 (**permalink**) 06-05-2009, 04:44 PM

I'm new to finance and was wondering if someone could help me understand how dividends work? My understanding is that dividends are payed to shareholders every quarter. How do you calculate how much you will get paid?
I understand that the yield is the dividend/price per share and thus the higher the yield the better. But, what is the dividend? For example, if a price per a share was $100 and the dividend was 2 then the yield would be %2. Does this mean that every quarter you get $2 per share? or $2 over the whole year? This would be considered annual dividend right? But, I thought that dividend were based on profits of that quarter, so how can you set a constant payout per a share? wouldn't the dividend fluctuate with the quarterly profits? Am I completely off?

Thanks for any help!

User Name · #2 (**permalink**) 06-06-2009, 11:56 AM

Quote:

Originally Posted by Panda09

I'm new to finance and was wondering if someone could help me understand how dividends work? My understanding is that dividends are payed to shareholders every quarter. How do you calculate how much you will get paid?
I understand that the yield is the dividend/price per share and thus the higher the yield the better. But, what is the dividend? For example, if a price per a share was $100 and the dividend was 2 then the yield would be %2. Does this mean that every quarter you get $2 per share? or $2 over the whole year? This would be considered annual dividend right? But, I thought that dividend were based on profits of that quarter, so how can you set a constant payout per a share? wouldn't the dividend fluctuate with the quarterly profits? Am I completely off?

Thanks for any help!

Maybe this link from investopedia will help answer your questions.

How Dividends Work For Investors

IntelligentInvestor · #3 (**permalink**) 06-06-2009, 03:01 PM

Dividends are usually paid annually (although, depending on performace some companies may introduce interim dividend).
You're right that if a share worth $100 and dividend is $2 then your yield is 2%, but you cannot use it as a guaranteed dividend as it depends on company's performace

Panda09 · #4 (**permalink**) 06-09-2009, 10:18 AM

Thanks!

Just to be clear, the dividend is how much is payed to someone for each share annually. And, the higher the yield the better. The yield is pretty much the year long interest rate, kind of like the amount of interest you would get from a savings account. The time the dividends are payed out depend on the company? Also, one last question I was a little confused on: If a company says it's dividend is 1.5 with 3.3% yield then this is them forecasting their profits? So is it guaranteed that this is the dividend that is paid to you or can they change the dividend later on and be justified in doing that? In other words, if a company has a certain dividend and you buy the stock are you guaranteed that amount or can they change that depending on what the profits are?

Thanks again!

Bjonsson · #5 (**permalink**) 06-11-2009, 02:45 PM

Quote:

Originally Posted by Panda09

If a company says it's dividend is 1.5 with 3.3% yield then this is them forecasting their profits?

Not necessarily. They aren't forecasting their profits, they are ONLY forecasting their dividend.

You need to remember that companies are not obligated to pay their profits out in the form of dividends to their stockholders. Companies can choose to retain some, or all of their profits as retained earnings if they chose to do so.

Quote:

Originally Posted by Panda09

So is it guaranteed that this is the dividend that is paid to you or can they change the dividend later on and be justified in doing that? In other words, if a company has a certain dividend and you buy the stock are you guaranteed that amount or can they change that depending on what the profits are?

They can change the dividend whenever they see fit. However, that is not to say that doing so is good practice in the eyes of potential investors!

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