What is a dividend? A quick guide for new stock investors
A dividend is the share of a company's profit paid to shareholders. Learn the key dates, how to calculate dividend yield and what to watch out for.
In this article
When you buy shares in a company, you become a part-owner of that company. One way owners get a return is through dividends.
What a dividend means
A dividend is the share of profit a company distributes to its shareholders. It's usually paid in cash and stated as an amount per share, for example 5 sen per share.
Not every company pays dividends. Fast-growing companies may choose to reinvest their profits to expand the business.
Key dates to know
| Date | What it means |
|---|---|
| Announcement date | The company announces the dividend amount and schedule |
| Ex-date | If you buy the shares on or after this date, you don't qualify for that dividend |
| Entitlement date | The list of eligible shareholders is fixed |
| Payment date | The dividend is paid into shareholders' accounts |
Did you know? A share price usually drops by roughly the dividend amount on the ex-date. So buying shares the day before the ex-date just to "chase the dividend" isn't necessarily profitable.
How to calculate dividend yield
Dividend yield helps you compare dividend returns between different shares.
Dividend yield = (total dividends per year ÷ share price) × 100%
Example: a share priced at RM2.00 that pays total dividends of 10 sen a year has a dividend yield of 5%.
Things to watch out for
- A very high dividend yield sometimes happens because the share price has dropped sharply. Find out why.
- Dividends aren't guaranteed. Companies can cut or stop payments if profits fall.
- Look at several years of history, not just one payment, to judge consistency.
The takeaway
Dividends can be an attractive source of passive income, but they're only one part of the bigger picture. Also consider the business's performance, the company's debt and your own investment goals.
This article is educational and not investment advice. Do your own research or consult a licensed financial adviser before investing.
