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Foster Financial Services

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Understanding Dividends from Stocks

What Are Dividends?

Dividends are payments made by a corporation to its shareholders, usually in the form of cash or additional shares. They represent a portion of the company’s profits and are a way for companies to distribute earnings back to investors.

Dividends Based on Number of Shares

Dividends are paid out based on the number of shares owned, not on the value of the stock. Here’s a breakdown:


Number of Shares: If you own more shares, you receive more dividends. For example, if a company declares a dividend of $1 per share and you own 100 shares, you will receive $100. If you own 1,000 shares, you’ll receive $1,000.

Dividend Per Share (DPS): This is the amount of the dividend paid for each share owned. It is a fixed amount for each share and does not change with the stock price.

*Example

Imagine you own shares in a company called XYZ Corp. XYZ Corp declares a dividend of $2 per share.

- If you own 50 shares, you will receive 50 * $2 = $100.

- If you own 200 shares, you will receive 200 * $2 = $400.

Key Points to Remember

  1. Dividends are not affected by stock price changes**: The amount you receive in dividends is solely based on the number of shares you own, not on the current stock price. If XYZ Corp's stock price rises from $50 to $70, your dividend remains at $2 per share.
  2. Dividend Yield**: This is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is calculated as (Annual Dividend per Share / Price per Share) * 100. This yield can change with stock price fluctuations, but the dividend per share remains constant until the company changes it.

Why Do Companies Pay Dividends

Companies pay dividends for several reasons:

  1.  Attract Investors: Dividends can attract income-focused investors.
  2. Signal Financial Health: Regular dividends can signal that a company is financially healthy and generating consistent cash flow.
  3. Return Profits to Shareholders: Dividends provide a direct return on investment for shareholders.

Conclusion

Dividends provide a steady income stream based on the number of shares you own, irrespective of stock price fluctuations. Understanding how dividends work can help you make more informed investment decisions and build a portfolio that aligns with your financial goals.

Securities and Advisory Services offered through Harbour Investments Inc.  Member FINRA  & SIPC The views and material presented are intended to provide background assistance and education only and is not intended to be tax or investment advice. Please consult a professional on your situation. Investments involve risks, including possible loss of principal. Past performance doesn’t guarantee future results. Guarantees are based on the claims paying ability of the insurance company. 

Heather Foster is advisory licensed in AZ, CA, FL, GA, IA, IL, IN, KS, KY, MA, MI, MO, MN, NY, NC, OH, PA, SC, TN, TX, WA, WI

John Pynchon is advisory licensed in GA, IA, IN, MI, MN, NC, OH, PA, SC, TX, WI. John Pynchon is securities licensed in GA, IN, IA, MI, MN, NC, OH, PA, SC, TX. 

Caleb Doane advisory licensed in AL, CA, GA, IA, IN, MI, MN, NC, OH, PA, SC, TX, WI. Caleb Doane securities licensed in GA, IN, MI, MN, PA, SC, TX. 

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