Dividends

Lesson

Dividends are payments a corporation makes to its shareholders, usually as a distribution of profits.

Practice Question #1

Which of the following is NOT a type of dividend?

A) Cash Dividends

B) Stock Dividends

C) Interest Payments

D) Qualified Dividends

Select an option above to see an explanation here.

A) Cash Dividends are a type of dividend paid in cash to shareholders. B) Stock Dividends are a type of dividend paid in the form of additional shares of stock. C) Interest Payments are not dividends; they are payments made by a borrower to a lender for the use of their money. D) Qualified Dividends are a type of dividend that meets specific criteria and is taxed at a lower rate than ordinary income.

Terms

Dividends:: Payments made by a corporation to its shareholders, usually as a distribution of profits.
Cash Dividends:: Dividends paid in cash to shareholders.
Stock Dividends:: Dividends paid in the form of additional shares of stock.
Dividend Yield:: The annual dividend payment divided by the stock's current market price.

Practice Question #2

What is the significance of the ex-dividend date?

A) The date on which the dividend is paid to shareholders.

B) The date on which a stock begins trading without the dividend payment.

C) The date on which an investor must own shares to be eligible for the dividend payment.

D) The date on which a company's board of directors announces the dividend payment.

Select an option above to see an explanation here.

A) The Payment Date is when the dividend is paid to shareholders. B) The Ex-Dividend Date is when a stock begins trading without the dividend payment. C) The Record Date is when an investor must own shares to be eligible for the dividend payment. D) The Declaration Date is when a company's board of directors announces the dividend payment.

Historical Example

In the early 2000s, a large technology company issued its first-ever cash dividend, signaling a shift in its strategy from rapid growth to a more mature, stable business.

Practice Question #3

What is a Dividend Reinvestment Plan (DRIP)?

A) A plan that allows shareholders to automatically reinvest their cash dividends into additional shares of stock.

B) A plan that allows shareholders to receive dividends in the form of additional shares of stock instead of cash.

C) A plan that allows companies to retain their earnings instead of distributing them as dividends.

D) A plan that allows shareholders to defer taxes on their dividend payments.

Select an option above to see an explanation here.

A) A Dividend Reinvestment Plan (DRIP) allows shareholders to reinvest their cash dividends into additional shares of stock automatically. B) This option describes a stock dividend, not a DRIP. C) This option describes retained earnings, not a DRIP. D) This option does not accurately describe a DRIP.

Real-World Example

A small retail company has a strong year and rewards its shareholders with a cash dividend. The board of directors declares a dividend of $1 per share, with a record date of June 1st and a payment date of June 15th. Shareholders who own the stock on the record date will receive the dividend payment on the payment date.