We Help Successful Women Set Up Investment Plans That Produce All The Income They Need to Live Their Best Life, For Life.

How Do Dividend Stocks Work?

So, there are a couple of ways to make money when you own a stock.

First is with a capital gain.

That’s the profit you make when you buy a stock, it goes up, and you sell it for more than you paid.

Second is with a dividend.

That’s the income you get paid just for owning a share of stock – whether it goes up OR down.

So, how do dividend stocks work? And how can you get some?

Dividend Basics

Stocks that pay dividends are valuable because they can provide you with a source of income.

Some dividends will even increase year after year, which helps offset inflation. So, just by continuing to own stock while existing on the planet, you might be making extra money! Score!

There are several ways you can be paid your dividends:

  1. The money is paid directly to your brokerage account
  2. You might be paid in the form of new shares of stock
  3. You might be offered participation in a “dividend reinvestment program” (DRIPs), which allows you to reinvest your dividend back into the company’s stock, often at a discount

All of these options turn into more income or more assets for you, bolstering your portfolio overall. 

You are usually paid dividends quarterly, but it depends on the company. Some might pay monthly or semi-annually.

This is all determined by the company and communicated to you — because you are a shareholder and therefore have your own little claim to the company! Fancy.

Important Dividend Dates

The big question everyone has about dividends is “when do I get my money?!”

And in classic Wall Street fashion, they don’t make it easy to figure out.

Here’s a screenshot of the dividend history of one my fave stocks, Innovative Industrial Properties.

We have the Ex-Date, Record Date, Pay Date, and Declared Date.

The Declared Date is the day the company ‘declared’ or announced the dividend.

When a company declares a dividend, it also sets a Record Date when you must be on the company’s books as a shareholder to receive the dividend.

Once the company sets the Record Date, the Ex-Dividend date is set based on stock exchange rules. The ex-dividend date for stocks is usually set one business day before the record date.

If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.

And then, of course, the Pay Date is the day the cash (or stock) gets dropped into your account.

How to Find Dividend Stocks

About 3,000 U.S. stocks pay a dividend and there are tons of ways to find them – including Dividend.com.

Not all dividends are created equal, though, and they are only as good as the company that pays them.

So, make sure you’re researching companies that offer them. 

Susan, our boss lady in charge, covers a quick and super effective way to do that in her Infinite Income™ program.

Look for companies with a reliable reputation, a long history of financial stability, and a track record of regular dividend payments. While nothing in the world of stocks is ever certain, this can at least help you feel more secure about your investment.

The next question that usually comes up is taxes.

Taxes on dividends can be 0-20% depending on your income and filing status.

Dividends received on shares held in a retirement account will be taxed once the money is withdrawn in retirement. Or, tax-free if you hold those funds in a Roth account!

Dividends can also be eliminated by companies if they run into financial difficulties — so, your payouts aren’t ever guaranteed.

But, nothing in the stock market is guaranteed, right?

So, risks aside, dividend stocks can still be a beneficial addition to your portfolio and your income if you research and invest smartly! 

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