Think of a dividend like rent your shares collect. The company runs its business, makes cash, and—if the board approves—pays you a slice per share.
1. What it is
• Cash per share authorized by the board.
• Funded by profits and free cash flow.
• Not guaranteed; in the US it’s often quarterly.
2. The timeline
• Declaration: amount and dates announced.
• Ex?dividend: buy on/after this date and you won’t get the upcoming dividend.
• Record: who officially gets it.
• Payment: cash hits your account. Note: Price often drops by about the dividend on ex?date.
3. Key terms
• Regular vs special dividends.
• Qualified vs ordinary (tax treatment differs).
• DRIP: automatically reinvests dividends into more shares.
4. Metrics that matter
• Yield = annual dividend ÷ share price.
• Payout ratio (EPS) = dividends per share ÷ EPS.
• Coverage = FCF ÷ total dividends (aim for >1.5×).
• Dividend growth (CAGR) over time.
5. Risk flags
• Very high yield with falling earnings/FCF.
• Payout >80–100% for long.
• Negative/volatile FCF, heavy capex.
• High leverage; weak interest coverage.
Quick example (illustrative): Apple paid $0.25 quarterly in 2024 ($1.00/year). At $200, yield is 0.5%.
If EPS were ~$6.50, payout ≈ 15%.
Low yield, strong safety.
Simple, right?
Don’t chase the biggest yield. Aim for steady payers with room to grow, healthy coverage, and clean balance sheets.
