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Generally, yes. But technically speaking, you receive not a dividend yield, but a dividend payout—and they’re not the same thing.
A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, and paid to its shareholders of record on a specific date.
After being declared, a company with common stock that pays a dividend will typically distribute the dividend every quarter. However—and this is where confusion often lies—the amount the company quotes is normally an annual figure.
Key Takeaways
- Dividends, a distribution of a portion of a company’s earnings, are generally paid in cash every quarter to shareholders.
- The dividend yield is the annual dividend per share divided by the share price, expressed as a percentage; it will fluctuate with the price of the stock.
- Dividend payouts are voluntary on a company’s part, though suspending a dividend or paying a smaller-than-expected amount doesn’t go down well on Wall Street.
How Are Dividends Calculated?
So, to calculate the amount you will receive each quarter, you will have to take the quoted dividend amount and divide it by four.
For example, if you own Cory’s Tequila Corporation (CTC), which pays a $1 yearly dividend on a quarterly basis, you would receive $0.25 every three months.
These figures are per share, of course. So, if you owned 100 shares of Cory’s stock, you’d receive $25 in dividends every quarter, and $100 for the total year.
Although cash dividends are the most common, dividends can also be issued as shares of stock or other property.
Dividends and Dividend Yield
Investors often view the company’s dividend by its yield—a measure of the dividend in terms of a percent of the current market price. Represented as a percentage, the dividend yield is calculated according to this formula:
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So, let’s say Cory’s Tequila is trading at $15 per share and pays a $1 annual dividend. Its dividend yield is 6% ($1÷ $15 = 0.06).
Depending on the source, the annual dividend used in the calculation could be the total dividends paid during the most recent fiscal year, the total dividend paid over the past four quarters, or the most recent dividend multiplied by four.
It’s important to remember that a stock’s dividend yield will fluctuate with the market price. If CTC is trading at $10 and it pays the $1 dividend, its dividend yield is 10% ($1÷ $10). If the price of CTC rises to $20 and it still pays the same dividend, the yield is only five percent ($1 ÷ $20). A change occurs in the yield any time the stock price changes, so don’t mistakenly equate a change in dividend yield with a change in the payout you receive.
No Guaranteed Dividends
Bear in mind that—unlike the interest on their corporate bonds—companies are not required to pay dividends. Doing so is a completely voluntary action that the company decides itself. Most companies will try to maintain a certain level of consistency with their dividend payout history to attract investors, but the payout can be changed at any time—on common stock shares, at least. Dividends on preferred stock are usually fixed, though company directors can vote to suspend the payout, or even to call the preferred stock.
Companies under financial stress might need to reallocate money to different projects, or the powers that be may just change their mind and no longer want to pay a dividend. It doesn’t happen often: Wall Street tends to react negatively when a company suspends dividends or even lowers them one quarter. Still, investors should always be aware that, while a company’s long-standing record of increased dividends is a good indication of payments in the future, the dividends aren’t guaranteed.