Many companies pass along a portion of the corporate profits to shareholders in the form of dividends. Historically, 2 to 4 percent of the total return from stocks has come from dividend payments. Investors buying stock for the dividend yield as well as growth should understand when the dividends will be paid.
How Dividends are Paid
The board of directors of a corporation declare each dividend a company makes. No dividend is guaranteed until the declaration is made to pay the next dividend. A dividend declaration includes the record date and the payment date as well as the amount per share of the dividend payment. Shareholders must own the shares on the record date to be entitled to receive the dividend payment on the payment date.
The most common frequency for dividend payments for American companies is quarterly. Dividends are declared and paid four times a year. Many companies make the dividend announcement along with the release of the quarterly earnings report and the dividend is paid a few weeks later. Investors can review the press releases for the last year on the investor relations page of a company's website to find when the dividend declarations and payments are typically made. Most company websites allow investors to sign up for email notification of press releases which will include dividend declarations.
Another often used dividend distribution option is to pay a dividend once a year. Companies that do not have a policy of regular dividend payments can choose an annual payment to pay out the percentage of the previous year's profits the board of directors thinks is prudent for the company's financial situation. Annual dividend payments make sense for companies that have significant profit fluctuations from year to year. Investors owning stocks with an annual dividend policy will see the amount of the payout vary from year to year.
Other Distribution Schedules
Several hundred stock exchange listed securities pay monthly dividends. Many of these are closed-end funds or ETFs, but some companies do elect a monthly distribution schedule. Companies that pay monthly are usually formed under a section of the tax code that requires most of the cash flow to be paid out to shareholders. These companies include master limited partnerships (MLPs) and real estate investment trusts (REITs). Another payment option is to make semi-annual dividend payments. This schedule is more common in foreign markets and the U.S. stocks that make semi-annual distributions are usually American depository receipts (ADRs) of foreign companies.