Quick answer
A dividend is a portion of a company's profit paid to shareholders. The board declares it, and you receive it only if you own the shares before the ex-dividend date. Companies can raise, cut or stop dividends at any time [1] [2].
Key points
- A dividend is a share of profit the company chooses to pay; it is not required.
- Four dates matter: declaration, ex-dividend, record and payment.
- Buy on or after the ex-dividend date and the seller, not you, gets that dividend.
- Dividend yield is the yearly dividend divided by the current share price.
- A DRIP uses your dividends to buy more shares; in the US those dividends are still taxable income.
#What is a dividend?
Investor.gov defines a dividend as "A portion of a company's profit paid to shareholders" [1]. Public companies that pay dividends usually do so on a regular schedule, such as every quarter, and an unexpected one-off payment is called a special or extra dividend [1]. Most dividends are paid in cash, but some companies pay in additional shares instead.
Dividends are a decision, not a duty. FINRA points out that a company may pay dividends on common stock but does not have to, and it can cut the amount or eliminate the dividend altogether [3]. Many fast-growing companies pay nothing and reinvest their profits in the business. If you are new to shares, start with what a stock is.
#Which dividend dates actually matter?
Every dividend comes with a schedule. The declaration date is when the company announces the dividend. The record date is when you must be on the company's books as a shareholder to receive it [2]. The payment date is when the money arrives. The date that decides who gets paid, though, is the ex-dividend date.
Investor.gov explains that the ex-dividend date for stocks is usually set as the record date, or one business day before if the record date is not a business day [2]. If you buy on or after the ex-dividend date, you do not get that dividend; the seller does [2]. This lines up with the US move to one-business-day (T+1) settlement, which took effect on May 28, 2024 [4]. There is one exception: if a dividend is 25% or more of the stock's value, special rules defer the ex-dividend date until one business day after the dividend is paid [2]. The ex-dividend date glossary entry has a short summary.
Investor.gov's example dividend schedule (Company XYZ)
Mon, March 2, 2026
Declaration date: the board announces the dividend and its schedule.[2]
Mon, March 16, 2026
Ex-dividend date and record date fall on the same business day. Buy before this day to receive the dividend.[2]
Tue, March 17, 2026
Payable date: the dividend is paid to shareholders of record.[2]
#Does the share price drop when a dividend is paid?
Often, yes. Money paid out to shareholders leaves the company, so the shares are worth a little less afterwards. Investor.gov notes that with a significant dividend, the price of a stock may fall by that amount on the ex-dividend date [2]. That is why buying just before the ex-dividend date to "capture" a dividend is not free money: you receive the dividend, but your shares may be worth less by about the same amount, and the dividend may be taxable.
#How is dividend yield calculated?
Dividend yield compares a stock's yearly dividend with its price. FINRA describes it as the yearly dividend rate divided by the current price, and notes that yield plus any capital gain or loss makes up a stock's total return [5]. Because the price is in the denominator, yield moves whenever the price moves. A rising yield can simply mean the share price has fallen. See the dividend yield entry or try the dividend yield calculator.
Worked example
Dividend income and yield on 100 shares
A hypothetical company pays $0.50 per share every quarter. You own 100 shares and the share price is $80.
- Yearly dividend per share ($0.50 × 4)
- $2.00
- Each quarterly payment (100 × $0.50)
- $50.00
- Yearly dividend income (100 × $2.00)
- $200.00
- Dividend yield at $80 ($2.00 ÷ $80)
- 2.5%
- Dividend yield if the price falls to $64 ($2.00 ÷ $64)
- 3.125%
The dividend did not change, yet the yield rose because the price fell. A high yield can be a warning sign, not a bargain.
Hypothetical figures, calculated in Python, before taxes. Dividends are not promised and can be cut.
#What is a dividend reinvestment plan (DRIP)?
A dividend reinvestment plan lets you use dividends to buy more of the company's stock instead of taking cash [6]. Investor.gov notes that DRIPs are offered by some companies directly and through brokerage accounts and mutual funds, and suggests checking whether you will be charged for the service before enrolling [6]. Reinvesting means each later dividend is paid on a slightly larger number of shares, which is the idea behind compound growth.
Shares owned with dividends reinvested
- With DRIP
- Taking cash
#Are dividends taxed in the US?
For US taxpayers, yes, generally. The IRS splits dividends into ordinary dividends, which are included in ordinary income, and qualified dividends, which are taxed at the lower capital gain rates; the payer reports which is which on Form 1099-DIV [7]. The IRS says you should receive a Form 1099-DIV from each payer for distributions of at least $10 [7]. Reinvesting does not avoid tax: IRS Publication 550 for 2025 returns explains that dividends reinvested through a DRIP must be reported as dividend income in the year received, even though you get no cash [8]. Rules for other countries differ. See capital gains tax basics for more.
| Item | What it means |
|---|---|
| Ordinary dividends | Included in ordinary income |
| Qualified dividends | Ordinary dividends that qualify for the lower capital gain rates |
| Form 1099-DIV | Sent by each payer for distributions of at least $10; shows which dividends are qualified |
| Reinvested (DRIP) dividends | Still reported as dividend income in the year received |
Common beginner mistakes
Buying on the ex-dividend date and expecting the payment
If you buy on or after the ex-dividend date, the dividend goes to the seller. Check the ex-date, not the payment date.
Chasing the highest yield
Yield rises when the price falls. A very high yield can reflect worries that the dividend will be cut.
Assuming dividends are fixed
Boards can raise, reduce or stop dividends at any time. Past payments do not commit the company to future ones.
Forgetting tax on reinvested dividends
In the US, dividends used to buy more shares through a DRIP are still reported as dividend income for the year you receive them, even though no cash reaches you.
What's the bottom line?
Dividends are a share of profit that a company chooses to pay, and the ex-dividend date decides who receives each one. Yield tells you how big the payment is relative to today's price, not how safe it is, and in the US reinvested dividends are still taxable. Next, see how investors weigh price against profits with the price-to-earnings ratio.
Frequently asked questions
How often are dividends paid?
It depends on the company. Companies that pay dividends usually do so on a regular schedule, such as quarterly, and sometimes add a one-off special dividend. The company announces each dividend and its dates.
If I sell my shares after the ex-dividend date, do I still get the dividend?
Yes. If you owned the shares before the ex-dividend date, you are entitled to that dividend even if you sell on or after the ex-date. The buyer does not get it.
Is a high dividend yield good?
Not necessarily. Yield is the yearly dividend divided by the price, so it rises when the price drops. A high yield can signal that investors expect the dividend to be cut.
Do funds pay dividends too?
Many stock funds pass the dividends they receive on to their shareholders, and most let you reinvest them automatically. The fund's prospectus explains its distribution schedule.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. SEC — Investor.gov. Dividend (glossary) (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends (2026). Accessed 2026-10-03.A
- FINRA. Stocks (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. New "T+1" Settlement Cycle – What Investors Need To Know: Investor Bulletin (2024). Accessed 2026-10-03.A
- FINRA. Defining the Value of an Investment (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Direct Investment Plans: Buying Stock Directly from the Company (2026). Accessed 2026-10-03.A
- Internal Revenue Service. Topic No. 404, Dividends (2026). Accessed 2026-10-03.A
- Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses (2025). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
