Dividends are a way that companies give back to their investors for holding their shares.
Often based on profits made in the year, companies may offer dividends back to their shareholders
The amount of the dividend is taken out of the share price and reduces the shares price. ex. If you had Apple (AAPL) at $100 and they offered a dividend of $1.00, the share price would drop to $99/share.
Not all companies give dividends and instead are hoping that their performance leads to a higher share price so that investors make more money.
In the case of AAPL, they are a growth stock but also offer a dividend.
Four Important Dates for Dividend Investors
Dividend Declaration Date: This is the date on which dividends are declared by the board of directors.
Ex-Dividend Date: The ex-dividend date usually is two days before the record date. This is the first day that the stock trades without the right to receive a dividend. On this day, the price of the stock will be reduced by the amount of the dividend. The reduction comes from the price of the last trade in the previous session. If you purchase a stock on the ex-dividend date, you won’t receive a dividend until it is declared for the next time period. To be able to get the dividend, you have to buy the stock before the ex-dividend date.
Record Date: Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.
Payment Date: This is the date on which the dividends are deposited directly in your investment account or sent in the mail.
People will often pay attention to the Dividend Declaration Date, Expected Earnings, and then purchase the security prior to the Ex-Dividend Date in order to receive the dividend payments
If you owned a single share of BAC from 09/04/13 to 03/04/21 you would have earned $3.08 per share
In 2009, naks purchased 50 shares at a price of $5.25 due to the housing crisis of 2008. Not counting the previous 4 years that the share was held, naks would have reduced his initial cost of $5.25/share down to $2.14/share. More importantly, in 2012 and 2021, naks sold off his shares at $20/share and later at $34/share.