Sunday, August 11, 2013

The Wonderful World of DIVIDENDS: PART II

Hello and welcome to Part II of my Dividend posts. Here I’ll present you with a few more important things to know!

How can you find out whether a company pays dividends?
Well, it’s very simple. All you have to do is go to a site such as Yahoo! Finance and in the "symbol look up" section type in the ticker symbol for the company that you are interested in. For example, if you want to know if Pepsi pays dividends; type in “PEP” in the box and you will get all the information relevant to Pepsi stock. It will look something like this:



Turn your attention to the bottom right hand corner of the box presented to you and look at where is says “Dividend & Yield.” If the company pays dividends, you will see a percentage and a number next to it. The percentage is the Annual Yield and the actual number is the actual dollar amount per share that you get in a year from that particular company:



Hence, if you have 100 shares of Pepsi, in a year you get 100 x 2.27=$227 which translates in to $56.75 every quarter!

Note: If a company does not pay dividends then you will see the words “N/A” in the “dividend & yield” box. A company like Google (GOOG), for example, does not pay dividends. It will look like this:


 Side note: You may wonder why a company as successful and well-established as google (with billions in reserves) doesn't pay dividends. Well, one of the reasons may be that they rather spend the money on research and development in order to remain competitive and ahead of the industry. It is true that Goog is #1 but in order to stay at #1 in a world where technology changes every second is quite difficult (and expensive). Hence, instead of directly giving money back to shareholders in the form of dividends they likely prefer to create value by reinvesting the money in company growth and staying ahead of the curve. This strategy continues to work for them as the stock price has increase significantly in past years and continues going strong! However, I would not be surprise if one day they start paying dividends. A similar situation happened with APPLE (appl) which just recently started paying dividends. So, moral of the story is that not every successful and established company necessarily pays dividends. So, do your research!

Another great website for dividend information is dividend.com. You have probably notice that I use that site a lot. I love that site because it presents you right away with the exact dates related to dividend payments (with yahoo! Finance you may have to dig a little deeper so I alternate between both websites depending on the information I am looking for). Check out dividend.com page for Pepsi:

Lets focus on the dates section for PEP:


Besides the dividend-disbursement date, for stocks I already own; another date I am interested in is the “ex-dividend date.” 

What the heck is the ex-dividend date?!

The ex-dividend date is important to me especially when it comes to stocks I am “eyeing” or interested in buying.  For example, look at the table above. The ‘ex dividend’ date for Pepsi stock is 09/04/2013. This means that if I want Pepsi to pay me dividends on their next “payment round” which is 09/30/13 (look where it says "Pay Date") I will need to own Pepsi stock before 09/04/2013. Lets say you forget to buy the shares before the ex dividend date and you pick up some on or after 09/04/13.; well, you will NOT be getting paid on 09/30/13 and will need to wait until the NEXT "round" of dividend payments in another 3 months. In the same idea, lets say you already own the stock but are thinking of selling it but still want to get your dividend payment before you do so, you have to sell your shares on or after the ex-dividend date. Hence, the reason why the dates are so important to keep in mind!

I will end the lesson right here and pick this up again in Part III of the dividend investing series. Let this information sink in and practice on your own doing research with the stocks of your choice. See how much they pay in dividends and play around with how much you would get per year if you have 100, 200, 400 shares and beyond.

Just for fun, lets say you have 400 shares of Pepsi (I wish!); that means that every year you get:
400*2.27= $908, which translates in to $227 every 3 months in passive income.

Simple math. Investing is NOT rocket science!

If you want a little bit more information on today's topic check out this great article on investopedia.com (another one of my go-to sites): Dissecting declarations, Ex-dividends and Record dates.

Have fun and see you soon! Thanks for reading!

*I do not currently own any shares of Pepsi (PEP) but I do own shares of GOOG. The stocks mentioned here are not a recommendation. Do not invest or cease to invest based solely on the information provided on this post.