What is a Dividend? Investing for Beginners Series #5 // What are dividends? david moadel
welcome to looking at the markets with David Modell this is another installment
in a series of videos that I'm making for beginning investors and so you can
start at the beginning and any questions are okay there are no embarrassing
questions there are no questions that are too beginner ish okay because that's
what this series of videos is all about so you can start right all right
and by the way I'm gonna put my email address below if you want help with
investing trading stocks putting together a plan for your investing
because you really should have a plan as they say if you fail to plan then you're
planning to fail so I can assist you with those things just shoot me an email
at David Modell at gmail.com alright so dividends that's what this
video is all about you might have heard the name you might know a little bit
about it what is a dividend well for people who buy a stock or shares of
stock for a company sometimes the company wants to reward or at least
appear to reward people who buy shares of their stock of course they want to
encourage people to buy their stock so that the stock price can go up that's
what causes stock prices to go up when lots of people buy that stock and that's
good for the company so sometimes companies will declare that they're
offering a dividend to stockholders people who own shares all right not all
companies not all stocks have dividends but some do and a lot of the more
popular ones offer dividends also some ETF's exchange-traded funds offer
dividends and if you don't know what that means
ETF that's okay don't worry about that that could be a separate video all right
so what is a dividend well basically if a company is profitable they can reward
or look like they're rewarding stock owners by paying out a cash that they
basically pay out cash they give cash to the people who
own the stock okay some usually it's cash sometimes they
give stock shares instead of cash to people who own the stock or sometimes
they'll even give property but that's rare usually it's going to be cash in
most cases all right now here's the thing you have to be aware I remember
when I was much younger and I thought this was free money I thought you just
buy the stock if it offers a dividend then hey that's free money they're gonna
put free cash in my pocket and so I bought the stock and the stock price I'm
sorry the the okay I bought the stock and waited for the dividend and hey
there there it was it happened in my account in my brokerage account there
was some cash a dividend payout but then I looked at the stock price and it went
down that same amount the amount of the dividend payout the amount that my
account went up in cash the stock share price went down that same amount so
really my all-together my account the amount of value and my account was the
same it really didn't change because while I gained some cash I also lost
some value in the shares of stock that I owned it was the same amount all right
so there basically what they did was they took a certain amount of value or
of money out of the value of the shares of stock that I owned and just gave it
to me in cash in other words indirectly what they did
was they forced me to sell off or to sell parts of the shares that I owned
which is kind of interesting all right so although it may seem like free money
notice how the share price can go down the same amount as what you got paid and
that's what happened to me and so I was a little bit disappointed yeah I thought
it was free money minoo free money really in the stock
if it were just free money if this if the shares of the stock stayed the same
and they just gave everybody free money then guess what everybody would just buy
the stock shares right before the dividend payout and then sell the stock
shares right after the dividend payout and just keep that free cash okay but it
doesn't work like that it's not so simple all right so just be aware that
it's you can't gain it you can't you know scheme and scam it to get free
money it doesn't work like that all right now if a now be aware that
different companies offer different dividends all right a typical dividend
might be Audino 2% 3 4 percent per year maybe 1% per year something like that
some stock some companies offer more than that you might see 8 9 even I've
seen 10 or more percent per year but you know again first of all be aware that's
probably not just gonna be free money also yes it is a good sign a lot of the
time when a company raises their dividend that they offer every year all
right if one year a company offers a 2% dividend and then the next year it's and
and these numbers are annual by the way I mean per year and then so if they
offer 2% and then the next year it's 2.3 percent then the next year it's 2.5
percent whatever if they are raising the dividends every year of a company
oftentimes that's a good sign it's positive for the company and for the
stock not always there no guarantees and I'm not gonna buy a stock just because
only because the company is raising its dividends consistently that's usually a
good sign because that means the company can afford to raise its dividends the
company probably has plenty of cash plenty of capital and if a company can
afford to pay dividends and raise them consistently yeah that's oftentimes a
good sign in fact there are companies called the dogs of the Dow okay the dogs
of the Dow these are companies in the Dow Jones and if you don't know what
that is don't worry about it those are large large companies but we can talk
about the Dow Jones in another video but these are large large companies that
have consistently increased their dividends over time okay
so oftentimes those companies do pretty well again
no guarantees not always I don't want you buy a stock just because they have
high dividends or because they're increasing their dividends in fact if a
company pays a really high dividend like more than 10% per year or something like
that it makes me wonder are they trying to yeah are they desperate are they
desperate to get people to pull people in to buy their stock shares why are
they offering a dividend that high is there something wrong with the company
perhaps possibly that they have to resort to extreme measures to get people
interested in their stock shares all right anyway that's a separate issue but
oftentimes it's a good sign when when companies offer dividends all right so
there are some things you should know first of all the dividend is not usually
paid just once a year it's oftentimes paid to three or four times a year it's
all up to the company how they want to pay the dividends for example if a
company offers or pays a dividend of 3% annually and they pay and they make
three payouts per year so that'll be one percent of the stock shares price every
time they make a dividend payout three times a year all right and the
percentages are based on this on the stock shares price so if they offer
three percent dividend per year that's three percent of the whatever the price
of the stock shares would be at that time okay just to clarify also some
dates you should know about when it comes to dividends and you and you might
hear these terms so I just want to clarify there's the date when they
announce the dividend all right our company will announce you know when
they're going to pay a dividend what percent it's going to be or what you
know perhaps what dollar amount that's going to be all right and then there's
so there's the announcement date and then after that sometime after after
that there's the ex-dividend date X devaney ax
- dividend date and you have to own shares of the stock the company's stock
before the ex-dividend date if you to get paid a dividend that time all
right once that ex-dividend date hits what
once you know once we reach that ex-dividend date you know that's it X
forget it you're not going to get a dividend payout for that cycle for that
dividend cycle for that that time all right and then after that very soon
after the ex-dividend date that's it's like a cut-off date okay you have to own
the shares of stock before this cutoff date if you want to get a dividend
payout that time then soon after that is the record date when the company records
or I mean I was gonna say writes down I don't know if they actually write it
down but they record who owned shares of stock they on that day they keep track
of and take note of who owned shares of stock before the ex-dividend date in
other words who's going to get the dividend payouts all right so they
record that so they'll know and then finally later on there's the payout date
you finally look in your brokerage you look in your broker's account and you
see some cash in there all right and again not free cash probably probably
just some you know pieces of your stock holdings were sold off okay and you get
a little bit of cash but maybe your stock is worth a little bit less now a
lot of times don't let that scare you though because a lot of times after the
dividend is paid yes on that day the stock shares go down a lot of the time
in order to pay the dividend but then if it's a good company oftentimes it
recovers and the stock price comes back up over time again that's if it's a good
company no guarantees that's going to happen but the I've seen that happened
quite a few times and so when you buy great companies that pay dividends over
time you know you you keep that cash in your account and meanwhile the stock
shares usually over time come back up even if they dip and so what you can do
with with that cash yes you can keep it as cash you can withdraw it and spend it
if you want to but if you want to enjoy the compounding effect of stock
ownership than what you can do is perhaps
take those cash payouts and buy more shares of stock with it if you have
enough money to do that alright that's a possibility and that's a decision you
have to make but that's how compounding works you know you just keep reinvesting
reinvesting any profits or dividends you make and that could really add to your
profits over time they can actually multiply the profits over time but that
tends to happen over periods of years so don't think that's going to happen
overnight alright so that's what dividends are
that's the basics of it alright I hope this video was helpful to you if you
found it helpful please give this a thumbs up on youtube give the video a
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putting together a plan if you have questions I can help you alright thanks
a lot and I'll talk to you again soon
you