Everything you need to know about stock dividends.
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What is a stock dividend?
A dividend is when a company decides to give money back to the shareholders directly. It is usually given in a flat dollar amount per share. Multiply the dividend amount times the number of shares you own and that is the amount that the company will send you. You usually have to have owned the stock for at least a few months prior to dividends being paid to get a check (i.e. you can't buy a stock the day before the dividends go out, get paid, and sell it the next day.).
What is a dividend yield?
A dividend yield is the dividend divided by the stock price. For example, if the dividend was $0.20 per share, and the share price was $10, then the dividend yield would be 2% (0.2 / 10 = 0.02). Since the stock price changes frequently, the dividend yield also changes, even if the dividend does not.
Are dividends good or bad?
That depends on who you ask. A dividend is usually a sign that the company can't reinvest the earnings back into the company. Thus a company that is rapidly growing and reinvesting every extra penny is not going to issue a dividend. On the other hand, if you are looking for a company that will grow slowly and steadily and would like a dividend check while you wait, a company with a dividend could be for you.
Why are these dividend yields so high, are they really going to pay me XX%?
A dividend yield is dependent upon the stock price. A stock price can go down even though the company is doing just fine financially. Therefore the company may have offered the dividend when the stock price was high and the dividend yield was low, then the price went down and the yield went up.
On the other hand, the companies stock may have gone down because the company's prospects are not very good. A stock with a dividend yield too high could be on the verge of bankruptcys, or they may have to default on their dividend.