Buying a dividend paying stock is as easy as buying any other regular stock. But you might buy a dividend stock and expect to get paid a quarterly dividend only to see the dividend not get deposited into your account. How could this be you might ask, let me tell you.
Each time a company pays a dividend they put out a dividend announcement that has an ex-dividend date and a dividend pay date. Usually these two dates are a few weeks (or more) apart.
Qualified Dividends
To qualify for the dividend you must own the stock on the day before the ex-dividend date. The ex-dividend date is the day the stock trades without the dividend. You must hold the stock at the cexercise/>lose of trading on the day before this ex date.
You are free to sell the stock anytime on or after the ex-dividend date and you will still be payed the dividend on the pay date. The pay date is the day the dividend is paid to shareholders.
Typically stocks will trade lower on their ex-dividend date in proportion to the amount that was paid to shareholders in dividends. This can be a hard concept to grasp so let’s use an example to see it in action.
Dividend Example
Let’s take a stock that is trading at an even $20 per share and let’s say it has an annual dividend of $.80 per share giving it a 4% yield. If this stock pays it’s dividends quarterly, like most stocks do, it will pay out a dividend of $.20 per share per quarter. $.20 is 1% of the share price.
If the stock cexercise/>losed at $20 per share on the day before the ex-dividend date it will open at $19.80 per share on the ex-dividend date, the day the stock trades without the dividend.
