A dividend is a portion of a company's profit paid to shareholders, usually quarterly. Companies that generate steady cash flow, like utilities and consumer staples, are the most consistent payers.
Three dates matter: the declaration date, when the board announces the payment; the ex-dividend date, when you must own the stock to receive it; and the payment date, when the cash arrives. Buying before the ex-date qualifies you; buying on or after it does not.
Dividends are not guaranteed, and a company can cut them in hard times. But reinvested dividends have historically contributed a large share of the stock market's long-term total return.
Key takeaways
- Dividends are profit shares paid to shareholders
- Own the stock before the ex-dividend date to qualify
- Reinvested dividends drive much of long-term returns
