Dividend
A cash payment distributed to shareholders out of company profits.
Also called: dividend yield · ex-dividend
In plain language
Dividends are usually paid quarterly. The dividend yield expresses the annual payment as a percentage of the current share price.
On the ex-dividend date the share price typically drops by roughly the dividend amount. The value is transferred, not created.
A yield that looks unusually high is often the result of a falling share price rather than a generous payout, and can signal a dividend at risk of being cut.
The formula
Dividend Yield
Annual Dividend Per Share ÷ Share Price × 100
Why it matters
The ex-dividend drop can look like a breakdown on a chart and can trigger stops that were placed without accounting for it.
Common mistakes
- Reading the ex-dividend price drop as a technical breakdown.
- Chasing high yields without asking why the price fell.
- Holding a short position through an ex-dividend date, where the dividend is owed by the short seller.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A unit of ownership in a company.
A company’s share price divided by its earnings per share.
A jump between one period’s close and the next period’s open with no trading in between.
A position that profits when the price falls.
A company’s net profit divided by its number of outstanding shares.