How it works
The board of directors declares a dividend, specifying the amount per share, the record date (who owns it counts), the ex-dividend date (typically one business day before record date), and the payment date. Holders who own the stock at the close before the ex-date receive the payment. The share price drops by roughly the dividend amount on the ex-date, so the dividend is not free money to short-term traders.
Example
Apple declares a quarterly dividend of $0.24 per share, with a record date of February 12, ex-date of February 9, and payment date of February 15. A holder of 100 shares before February 9 receives $24 on February 15. The stock typically opens about $0.24 lower on February 9. Annualised, that is $0.96 per share, or about 0.5 percent on a $180 stock. Coca-Cola, by contrast, pays about $1.84 annualised on a $60 share, around 3 percent yield.
Why it matters
Dividends are a substantial component of long-term equity returns; reinvested dividends roughly doubled the S&P 500’s long-term annualised return versus price-only. Dividends also signal management confidence: cutting a dividend is a strong negative signal and is usually punished sharply. For income-focused investors, dividend yield, payout ratio, and dividend-growth history matter more than price action. For growth investors, lack of dividend often signals reinvestment back into the business.
