Hi everyone, here is the second post from the "Education for new investors" series. Again, I will be sharing my knowledge on topics surrounding investing and readers do not require prior financial background to understand the posts. This one is about dividends.
❓What is a "Dividend"?❓
Some of you may already know what it is, but some might not. A dividend is simply an interest from the investment that you have made towards the company. Let's say that you have bought one share of $apple, the management of the firm might decide to pay a small amount to its shareholders.
Extra money ? I like that !
🤷♂️ I have been investing in different companies, and I have not received anything, Why ? 🤷♂️
There are several reasons why you have not received a dividend.
The first reason is because not every company is paying dividends. The choice of paying a dividend to its shareholder is at the discretion of each company. Also, companies can decide to pause the dividends payments at any point (which rarely happens), if the company needs more cash.
The second reason is because among the companies that pay dividends, some of them are paying dividends every 3 months, some every 6 months, and some only once a year. So maybe the company you have bought a share of did not pay a dividend yet.
🤷♂️ How much is a dividend ?🤷♂️
It is depending of the company. Companies paying dividends are not paying the same amount of dividends. Here is an example of an actual company paying dividends:
Let's assume that on Monday 13th January 2021, we bought one share of $Apple.
The price of the share was $131.20. We have now one share of Apple in our portfolio.
Apple has announced that the next dividend payment is due on Thursday 11th February 2021, and that shareholders will receive a dividend of $0.205 for every share owned.
Because we now own a share of Apple, we will receive a payment of $0.205, 🎉 Hoorah 🎉
🤷♂️ Is there anything else I need to know ?🤷♂️
Yes. Apple is paying dividends 4 times per year. Let's assume that they will pay the same amount the 4 times, we will now calculate how much of dividend we will get at the end of the year.
4 * $0.205 = $0.82
We now know that they will pay $0.82 per share to its shareholder by the end of the year.
Because we bought one share, we will receive $0.82 by the end of the year.
It would be interesting to know how much the return from our initial investment would be.
$0.82 / $131.24 = 0.00625 = 0.625%
This return on investment from the dividend only is called YIELD.
Then our YIELD from our Apple's share is 0.625%
Now you know everything about how dividends work.
If you need to know whether the company you have bought a share from is paying dividends, how often they do it, and how much the dividends are, I would recommend you to google "investor relations" + the name of the company. On their investor relations section you should be able to find out all this information.
If you liked this post, please stay tuned for more posts within the series. 👍🏻👍🏻