If you are interested in investing in stocks, you may have heard of dividends. But what are dividends and how do they work? Here is a detailed list of the main points you need to know about dividends:

– A dividend is the distribution of a company’s earnings to its shareholders. It is a way of rewarding investors for owning a company’s stock.

– A dividend is determined by the company’s board of directors, who decide how much of the earnings to distribute and how often. Dividends are usually paid quarterly, but some companies may pay them monthly, annually, or irregularly as special dividends.

– A dividend is expressed as a dividend per share (DPS), which is the amount of money paid to each share of stock. For example, if a company pays a $0.50 dividend per share and you own 100 shares, you will receive $50 in dividends.

– A dividend is also expressed as a dividend yield, which is the annual dividend per share divided by the current share price. It shows how much income you can earn from a dividend stock relative to its price. For example, if a company pays a $1 dividend per share and its share price is $20, its dividend yield is 5% ($1/$20 x 100).

– A dividend is not guaranteed and can be changed or eliminated by the company at any time. Some companies may not pay dividends at all and instead reinvest their earnings back into the business for growth or debt reduction.

– A dividend can be paid in cash or in additional shares of stock. A cash dividend is the most common type and is deposited into your brokerage account or mailed to you as a check. A stock dividend is when the company issues new shares to existing shareholders instead of cash. This increases the number of shares you own but does not change the value of your investment.

– A dividend can have tax implications depending on how it is classified and how long you hold the stock. Generally, dividends are classified as either qualified or nonqualified. Qualified dividends are taxed at lower rates than nonqualified dividends, which are taxed as ordinary income. To qualify for lower tax rates, you must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the date when you must own the stock to receive the dividend.

– A dividend can affect the share price of the stock. On the ex-dividend date, the share price usually drops by the amount of the dividend to reflect the fact that new buyers will not receive the dividend. However, other factors such as market conditions, earnings reports, and news events can also influence the share price and may offset or amplify the effect of the dividend.

Dividends can be a source of income and a sign of a company’s financial health and stability. However, they are not the only factor to consider when investing in stocks. You should also look at other measures such as earnings growth, valuation, competitive advantage, and future prospects. Dividends are not free money and come with risks and trade-offs. You should always do your own research and analysis before investing in any stock.