Facts to Know About Dividend Investing

Investing in dividends is a popular way to make money in the stock market. It involves going out and getting into a few the highest dividend paying stocks and hanging onto them for the long term collecting the income that they produce. It can definately be a nice strategy, however there are a few things you’ll need to know first. These are the following.

1. Dividend Yield

The Dividend yield ratio is a ratio that tells investors how much money they can expect to make off of a dividend yielding stock. For example if the dividend yield is 5% they can expect to make 5% of their money back in dividends for each year that they hold the stock.

2. Dividends and The Price of the Stock

A lot of people seem to think that dividends are free money. Actually it is taken from the price of the stock. For example if a company is paying out a $.20 cents dividend and the price of the stock is $30 the money will be taken out of the price of the stock and distributed.

In other words the price of the stock will drop a little bit from $30 to $29.80 and then the $.20 dividend will be paid out. It isn’t free money, however the idea is that it can come out of the profits that you have made in the stock from appreciation.

3. Ex Dividend Date

To qualify for a dividend you have to hang onto the stock through something called an Ex dividend date. This is simply the date when the dividends are taken out of the price of the stock. This is different than they payout date when the dividend is paid out to the investors.

If you buy the stock after the Ex dividend date and hold it through till the payout date you will not receive any dividends from the shares of stock.

Related Posts

• Investing for Dividends