Intro to Dividends (Listen on Racket 🎙️)
Simply put, a dividend is a payment made by a company to its shareholders.
When a company makes a profit, it can decide to hold on to those profits to be reinvested into the companies operations, expansion, R&D or various other endeavours.
OR, it can choose to pay some or all of those profits to shareholders.
In that second case, those payments are called dividends.
In order to receive dividends, you have to own shares of the company.
Not all companies pay a dividends, and not all dividend paying companies pay on a regular schedule.
Some companies will pay a dividend when they have excess profits that they can't find a better use for. Some companies try to commit to paying regular dividends on a consistent basis, and some companies are required to pay regular dividends by law.
To be eligible for dividends, you must own shares in the company, and you must have bought those shares before an important date called the X-date.
The X-date is the date when your eligibility for a particular dividend payment expires. If you buy on or after the X-date you will not be eligible for that dividend payment.
In addition to the X-date there are three other important dates
The Announcement date, or declaration date is the date when the company declares what the dividend will be and the other important dates related to it.
The Record Date is the date on which the company records who the eligible shareholders are. The record date usually falls on the next day after the X-date.
And the Payment Date is the date the company actually makes the dividend payment.