Some companies make regular payments, called dividends, to investors who own shares of its stock. For investors, this may be considered an advantage of investing in a company — though they may wonder, when are dividends paid?
Not all companies pay dividends, so if steady dividend income is the goal, an investor would need to look specifically for dividend-paying investments.
How often do dividends pay? Dividends are typically paid quarterly, though there are cases where they are paid more or less frequently. But there’s more to it than simply investing in a stock and waiting for one’s dividend to roll in.
What Are Dividends?
Companies will sometimes share a portion of their profits with shareholders, and this is called a dividend. Dividends are typically distributed as cash, although it’s also possible to receive a dividend in the form of stock.
Typically, dividends work on a per-share basis. For example, if Company A pays a cash dividend of 50 cents per share, and an investor owns 50 shares, they would receive $25 in cash.
If a company pays a stock dividend, it’s usually a percentage increase in the number of shares an investor owns. So if Company A awards a 5% stock dividend and an investor owns 100 shares of Company A, they would have 105 shares after the dividend payout.
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How Often Are Dividends Paid Out?
In most cases in the U.S., dividends are paid quarterly, or four times a year, on the same schedule as they must report earnings (quarterly). If you’re wondering why companies generally pay quarterly vs. monthly dividends, logically, it makes sense that dividends would come only after a company has finalized its income statement and its board of directors has reviewed (and approved) the numbers.
Some investments pay dividends on other schedules, such as twice a year, once a year, or as monthly dividend stocks, or on no schedule at all (called “irregular” dividends), but this isn’t typical in the United States. Ultimately, the dividend payout schedule is up to a company’s board of directors.
It’s also possible for a company to pay a special one-time dividend. Usually a special dividend is paid out when a company has had a stronger-than-usual earnings period or has excess cash on hand — from the sale of a business, perhaps, or the liquidation of an investment, or a major litigation win. These special one-time dividends may be paid as cash, stock, or property dividends.
When it comes to mutual funds that invest in dividend-paying companies, they may pay dividends on a more frequent basis, such as monthly or even weekly.
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Important Dividend Dates
Although the answer to the question “How often are dividends paid out?” may vary, there are four essential dates involved in the payment of dividends:
1. Declaration date: This is the day that a company’s board of directors states their intention to pay a dividend.
2. Date of record: This is the date on which a company will review its records to establish who its shareholders are. In order to receive a dividend, an investor must be a “holder of record,” which means they owned shares on or before the ex-dividend date.
3. Ex-dividend date: This is the date by which an investor must have purchased shares of a stock in order to receive an upcoming dividend. If an investor bought shares of Company A on or after the ex-dividend date, the dividend would go to the investor from whom they purchased the shares — they themselves would not receive a dividend.
4. Payment date: This is the date a dividend is paid to company shareholders.
IMPORTANT DIVIDEND DATES
for 5 Companies in the S&P 500 Dividend Aristocrats Index
|Company||Dividend Payout||Declaration Date||Ex-Dividend Date||Date of Record||Payment Date|
|AbbVie Inc. (ABBV)||$1.48||June 22, 2023||July 13, 2023||July 14, 2023||August 15, 2023|
|Atmos Energy Corp (ATO)||$0.74||May 3, 2023||May 19, 2023||May 22, 2023||June 5, 2023|
|Chevron Corp (CVX)||$1.51||July 28, 2023||August 17, 2023||August 18, 2023||September 11, 2023|
|General Dynamics (GD)||$1.32||August 1, 2023||October 5, 2023||October 6, 2023||November 10, 2023|
|Nucor Corp (NUE)||$0.51||June 8, 2023||June 29, 2023||June 30, 2023||August 11, 2023|
Typically, investors wondering, when are dividends paid?, can get information about a company’s dividend dates by visiting its investor relations page. To find this, search for the company’s name and “investor relations” online. Or check a company’s dividend history online. Many investment websites, including Nasdaq.com, track this information.
When Are Dividends Paid?
Once a company’s board of directors approves a plan to pay out dividends, the company announces the dividend payment information, including: the amount to be paid out, the date it will be paid, the date of record, and the ex-dividend date.
On the payment date, the dividend is paid to investors who owned the stock before the ex-dividend date.
Different Dividend Payout Methods
These are some of the ways dividends may be paid to investors.
Dividends are often paid in cash. Companies typically send cash dividends directly to an investor’s brokerage, where the money is deposited into their account. The company might also mail a check to stockholders.
Company Stock Dividends
In other cases, investors will be paid in company stocks. Some companies and mutual funds offer the option of a dividend reinvestment plan (DRIP) that will automatically buy additional shares for an investor with their dividends. This provides the advantages of both simplifying the process (since investors won’t have to receive the cash and buy more shares themselves) and potentially being more cost effective, since many DRIP programs don’t charge commissions.
Additionally, some DRIP programs discount the purchase of additional shares. For this and other reasons, some investors may specifically look to find dividend reinvestment stocks.
More rarely, a company might award a property dividend instead of cash or stock payouts. This could include company products, shares of a subsidiary company, or physical assets the company owns.
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Are Dividends Taxable?
Dividend income is always taxable, but tax treatment will depend on how long an investor has held the investment and what kind of account they’re holding it in.
For instance, if an investor is holding the investment in a retirement account such as a 401(k) or IRA, the dividend isn’t taxable at the time of distribution. (Though depending on the account, the income may be taxed upon withdrawal during retirement.)
If the investment is held in a taxable account, then a dividend is considered income, and the tax rate will depend on whether it’s a qualified dividend or nonqualified (ordinary) dividend.
Tax Rate for Qualified Dividends
These are dividends paid by a U.S. corporation or a qualified foreign corporation on stock that an investor has held for a certain period of time—generally more than 60 days during the 121-day period that starts 60 days before the ex-dividend date.
For some preferred stock, the investor must have held it for 91 days out of the 181-day period starting 90 days before the ex-dividend date. Taxes on qualified dividends are paid at long-term capital gains rates, which range from 0% to 20% based on an individual’s modified adjusted gross income.
In other words, the taxes investors pay on qualified dividends are based on their overall income tax bracket, and they could pay 0%, depending on their income. Because the long-term capital gains tax rate is lower than ordinary income tax rate, qualified dividends are preferable to nonqualified dividends.
Tax Rates for Long-Term Capital Gains
Tax Rates for Long-Term Capital Gains
|Filing Status||0% Rate||15% Rate||20% Rate|
|Head of household|
|Married filing jointly|
|Married filing separately|
Tax Rate for Nonqualified Dividends
The more common type of dividend is a nonqualified — or ordinary — dividend. When companies pay ordinary dividends, they’re considered ordinary income, so an investor will be taxed at ordinary income tax rates.
In general, investors should assume that any dividend they receive is an ordinary dividend unless told otherwise. (The payer of the dividend is required to identify the type of dividend when they report them on Form 1099-DIV at tax time.)
Can You Live on Dividends?
In general, retirees should plan to live off a combination of Social Security, interest income from bonds, and selling a small portion of their investments each year. The 4% retirement rule maintains that if one withdraws no more than 4% of their portfolio each year, they’ll be able to make their nest egg last — although some financial professionals believe this formula is too conservative.
Investments that pay regular dividends may shift an individual’s retirement equation by providing steady income over time that may allow them to sell fewer investments — or no investments at all. The amount of dividends a stock pays often grows over time as companies get larger and continue to increase their profits.
Investing with an eye toward dividend income may allow an investor to create an income stream that could successfully supplement their Social Security and other income in retirement.
Investing With SoFi
Dividends — cash or stock rewards from a company to its shareholders—are typically paid quarterly to qualifying shareholders. These financial “bonuses” can be attractive to investors, who may seek out dividend-paying companies specifically in hopes of boosting their bottom line. Some investors look specifically for investments that pay dividends as a way to generate income and savings for retirement.
Dividends may provide a source of consistent and predictable income, which may be a helpful addition to an individual’s portfolio, depending on their investing goals. Investors may choose to use dividend income to supplement other income or to reinvest in their portfolio.
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How long do you have to hold a stock to get a dividend?
In order to get a dividend, an investor needs to be a “holder of record.” That means they need to buy, or already own, shares of the stock before what’s known as the ex-dividend date, which is the business day before the date of record. The date of record is when the company reviews its records to determine who its shareholders are. The date of record is generally announced when the dividend is announced.
Are dividends taxed if they are reinvested?
Yes. Dividends that are reinvested are considered income, just like cash dividends, and must be reported on your tax return. The way you are taxed on dividends depends on whether your dividends are qualified or nonqualified. The more common type of dividend is nonqualified, and these dividends are taxed at ordinary income tax rates. Qualified dividends are taxed at long-term capital gains rates.
What happens if you take more dividends than profit?
Typically, a portion of a company’s earnings should go to paying out dividends. This is known as the dividend payout ratio. Investors typically look for payout ratios that are 80% or less — meaning that the company is not paying all of its earnings in dividends.
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