August 20, 2011 | In: General

How Are Stock Dividends Paid?

When I started trading stocks, I didn’t care about dividends. I didn’t buy stocks because they had dividends, I just bought them because I wanted to sell them at a profit. But, to my (pleasant) surprise, I woke up one day, I logged in to my investor’s account on my broker’s website, and I saw that I had a credit transaction which was a dividend pay (I remember the first company paying me dividends was CVBF, which I have talked about many times before).

Here’s how it works:

– You buy a stock, for example, 1,000 shares of BAC
– When BAC (Bank of America) pays dividends to its shareholders, you will automatically see a credit transaction in your trader’s account (if your account is online)

How are taxes paid on dividends?

Taxes are deducted automatically from your dividends. In other words, there will be two transactions in your trader’s account: A credit transaction crediting you for the dividend, and another debit transaction taxing you for the dividend.

Do brokers take a commission on dividends?

You might wonder if your broker takes a cut from your dividends since it’s a transaction. But remember, brokers usually take commissions on trades, not transactions. I’m saying usually, because in my case, the broker didn’t take any commission, and this is a fair thing in my opinion. You might want to check with your broker about this.

Can dividends be paid by check?

My account is online, so I was never paid by check. I was paid electronically directly by the broker on behalf of the company I have stocks with. I think if your account is offline (the old way), then most likely you will be paid by check, or by direct deposit to your bank account if they have it.

How often are dividends paid?

Most dividends are paid quarterly. But some companies pay them semi-annually, some others pay them annually, and some others pay them at will (meaning when the company decides to pay dividends).

Is the amount paid related to the number of shares?

Since a dividend is per share (for example, if a company decides to give a dividend of $4, this means that they are giving $4 for every share that you have), then the more shares that you have, the bigger amount you will get paid.

What is the best way to know how much is the dividend of a company?

If you want to know how much a company pays in dividends, then just check it Google finance. On the top of the page, there is something called “Div/yield”. If you want you can check JpMorgan Chase (JPM) which has a Div/yield of 0.25/2.91. This means that their dividend is $0.25. So, if you own 1,000 shares of JPM, then you will receive 1000 x $0.25 = $250 as dividend every quarter.

Are dividends reinvested automatically?

New investors think that their dividends are reinvested automatically to buy more stocks of the same company. This is not the case. Dividends are paid in money. It is up to the investor to reinvest them (in the same stock or in other stocks) or not.

Will I be paid if I purchased stocks immediately before the company issues the dividends?

The regulation says that you have to buy shares at least 2 days before the company issues the dividends in order to be eligible. If you buy the shares 1 day before, then you will receive nothing.

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