Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Teach Me

What is a Dividend? A New Investor’s Guide

February 27, 2019

2 min read

What is a dividend? There’s a lot to know about this key investment term. Here are some simple answers to some commonly asked questions.

What is a dividend?

A dividend is a distribution of a company’s earnings, a divvying up.

Say Coca-Cola makes a profit. And say you own shares of Coca-Cola. If those shares pay dividends (not all do), you get a certain amount of the profit the company distributes to its shareholders. That amount is determined by how many shares you have.

This is called ‘pro-rata’ in finance-speak, which just means proportional. Your share of the dividends is in proportion to how many shares you own.

Dividends are almost always paid out in cash payments (occasionally additional shares of stock are issued, but it’s usually cash). And these payments usually occur four times a year (at the end of every quarter).

What is dividend reinvestment?

Dividend reinvestment is pretty much what it sounds like. You get a dividend payment, and rather than taking the cash and spending it, you reinvest those dividends back into your investments.

Another reason re-investing your dividends may be wiser than just cashing them out?

Cash dividend payments tend to be affected more by inflation, whereas stock values can often increase at rates above inflation over time—though that’s not necessarily guaranteed.

Dividend reinvestment can be a great way to keep adding to your investments and keep your money working for you.

How are dividends taxed?

Something to note. Your stock dividends are not taxed until the investor liquidates their shares.

This is why people may choose to re-invest their dividends rather than cash out. By keeping their dividends in the market, they can avoid paying taxes on that money.

How do I know if my investments pay dividends?

One way to find out if a stock pays dividends is to go to a free research site such as Yahoo Finance and enter the ticker (the series of letters that represent a company being traded on an exchange).

If it does, it will list the most recent dividend date and amount.

When you invest on Stash, you can find information about dividends for every single stock and fund we offer.

What is dividend yield?

This is a ratio that shows cash dividends relative to a stock’s price (translation: what you can expect to get based on what you put in and how a stock is trading). This is expressed as a percentage.

Your share of the dividends is in proportion to how many shares you own. Let’s check out what this looks like in dollars and percentages.

The relationship looks like this:

Yields are usually estimated based on the previous year’s dividend payments, and payment schedules are set in advance, making them somewhat predictable. However, the dividend yield of a stock is directly affected by the price of a company’s stock, so there’s no crystal ball.

No one can predict the future, but the historical price and dividend data can help us better understand yields.

Stash your dividends

Dividends are just one reason that investing your money for a long-term goal may be a wiser idea than just leaving it in your checking account.

It can be a great way to keep your money working for you.


By Stash Team

Investment Profile

Bonds Worldwide

An International Bond ETF on Stash

Learn more
Explore more articlesChoose a topic to learn more about
pop culture Retirement politics love and money social media

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.