How to Earn Dividends
When investors purchases stock in a company, they are taking an ownership stake in that firm. As a result, they are entitled to the cash flows earned by that company. At the end of each quarter, a company will declare its accounting profits and will decide how much money it will retain and how much it will give back to its shareholders in the form of dividends. Some companies regularly pay dividends, while others choose to retain all their earning in order to reinvest the money back into the firm and add value to the stock that way.
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Instructions
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How to Earn Dividends
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Research companies in order to find out which firms are currently paying dividends. Not all companies pay dividends. You can use Yahoo! Finance, Google Finance or any other financial source that will display if a company currently has a dividend yield. If a company is preparing to pay out dividends, it will have a declaration date when the board of directors sets the dividend and announces the ex-dividend date.
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Purchase shares of stock in a company using your brokerage account prior to its ex-dividend date. In order to qualify for the dividend payment, you must be on the list of shareholders during the record date. Because pending transactions take a few days to settle, the ex-dividend date, which is two to four days before the record date, is the cutoff date to receive the dividends.
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Hold the shares of stock until after the record date. Afterward, you can sell off the shares and you will still receive the dividends on the payment date.
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Tips & Warnings
When researching companies that make dividend payments, focus on their dividend yield. The dividend yield is the amount of dividends to be paid divided by the price of the stock. The higher the yield, the greater the return on your investment.
The market discounts the price of the stock after the ex-dividend date passes. As a result, the stock price will fall once investors are no longer qualified to receive the dividend for that quarter. If you plan on buying and selling stocks in order to receive dividends, count on taking a loss on the sale of the stock, or to hold the stock until the price recovers.
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