What Is a Dividend?
A dividend is a share of a company’s profit paid out in cash to its shareholders, usually every quarter. The dividend yield is a year’s dividends divided by the share price: a $100 stock paying $3 a year yields 3%.
Today the S&P 500 (SPY) yields 1.00%, and the dividend ETF SCHD 2.95%.
How dividends are paid
The board declares each dividend: how much per share, and the record date that decides who gets it. To be paid you must own the stock before the ex-dividend date, which since US trades began settling in one day (2024) is usually the record date itself. On the ex-dividend date the share price tends to drop by about the dividend, since the cash is leaving the company.
Most US companies pay quarterly; some pay monthly or once a year. Many investors reinvest dividends in more shares, which is how most of the stock market’s long-run return has compounded.
What dividend yield tells you
Yield compares the income with the price you pay for it. Because it divides by the price, the yield rises when the price falls: a stock that halves while keeping its dividend doubles its yield.
That is why a very high yield is often a warning rather than a bargain. The market may be expecting a cut. Look at whether earnings and free cash flow cover the dividend (the payout ratio) and whether it has grown over time.
What is a good dividend yield?
There is no single good number. The S&P 500 as a whole has yielded around 1–2% in recent years; dividend-focused funds and mature sectors such as utilities, consumer staples and energy often yield 3–4%. A yield far above its peers deserves a closer look at why.
Dividend growth matters as much as the starting yield: a 2% yield growing 8% a year overtakes a flat 4% yield in about nine years.
Put it to use
Dividend stocks with growing payouts →Dividend ETFs →General information, not investment advice.