What Are Dividends & How Do They Work?
Overview
Dividends are cash payments companies make to shareholders from their profits. Learn the basics — how dividends are declared, paid, and why they matter for long-term wealth building. Once you understand key dates and yield calculations, explore our dividends hub for deeper strategies. Use the compound interest calculator to see how reinvested dividends accelerate your returns, and browse the glossary for any unfamiliar terms.
Key Takeaways
- Dividends are typically paid quarterly from a company's earnings.
- Key dates: declaration date, ex-dividend date, record date, payment date.
- You must own the stock before the ex-dividend date to receive the payment.
- Dividend yield = annual dividend per share / current stock price × 100.
Practical Tips
- Track ex-dividend dates on your broker's calendar or dividendcalendar.com.
- Don't buy a stock just for the dividend — the price drops by the dividend amount on the ex date.
- Reinvesting dividends (DRIP) compounds returns significantly over decades.
More Basics Guides
How Dividend Reinvestment (DRIP) Compounds Wealth
DRIP automatically reinvests your dividends to buy more shares, which earn more dividends, which buy more shares — the snowball effect that has made millions for patient investors. Model out decades of reinvestment with our <a href="/tools/calculators/compound-interest" class="text-primary hover:underline">compound interest calculator</a> and pair DRIP with a <a href="/guides/dollar-cost-average-effectively" class="text-primary hover:underline">dollar-cost averaging strategy</a> for maximum consistency. Once you start adding lots to your portfolio, reliable <a href="/tools/portfolio-trackers" class="text-primary hover:underline">portfolio trackers</a> will keep your cost basis organised.
Dividend Yield vs Dividend Growth
High yield today or growing yield tomorrow? Understanding the tension between current income and dividend growth rate is essential for building the right income portfolio. See how compounding favours growth stocks with the <a href="/tools/calculators/compound-interest" class="text-primary hover:underline">compound interest calculator</a>, and screen for Dividend Achievers in the <a href="/tools/screener" class="text-primary hover:underline">stock screener</a>. For a deeper look at the companies that dominate the growth camp, read the guide to <a href="/academy/dividends/dividend-aristocrats" class="text-primary hover:underline">Dividend Aristocrats</a>.