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Dividend stocks can help you build your wealth. Forbes Advisor’s Dividend Calculator helps investors understand precisely how much they’re earning in dividends over a period of time, factoring in the company’s stock price, number of shares owned, holding periods, annual dividend yield, tax rates and increases in the company’s dividend payouts and stock price.
How to Use Our Dividend Calculator
To get the most out of this dividend calculator, be sure to input the correct numbers for each data point. If you’re having any difficulties, the definitions and defaults are as follows:
- Stock Price: $100. This is the price of one share of the company for which you’re calculating the dividend.
- Number of Shares: 100. The number of shares you’ve purchased.
- Investment Amount: Total amount of money you’ve invested in the company.
- Holding Period: 10 years. Number of years you intend to hold the company’s shares.
- Annual Dividend Yield: 3%. The company’s current dividend yield.
- Annual Contribution: $1,000. How much you intend to invest in the company each year.
- Dividend Tax Rate: 15%. Your anticipated dividend tax rate.
- Expected Annual Increase in Dividend Payout: 10%. How much the dividend will rise each year.
- Expected Annual Increase in Stock Price: 10%. How much the company’s shares will gain in value each year.
- Dividend Reinvestment Plan: Is there a dividend reinvestment plan for this company?
What Is a Dividend?
Dividends are a portion of a company’s profits that it distributes to shareholders. Companies offer dividends to reward their investors, and distribute excess cash that’s not reinvested in the business. Most often, larger, more established companies pay dividends.
Unlike the interest payments on a bond, however, dividend payments are seldom guaranteed. A company may choose to cut or eliminate their dividend when it experiences economic hardship and needs to conserve cash.
What Is Dividend Yield?
Dividend yield is a ratio that represents the annual return on a dividend per dollar invested in a stock. For example, if the current price of a company’s stock is $100 and it pays a $5 annual dividend, the company has a 5% dividend yield.
Since the dividend yield of a stock depends on both the current price per share and the annual dividend amount, it fluctuates frequently based on changes in either factor. Dividing the stock’s annual dividend amount by its current share price allows you to calculate a stock’s dividend yield.
For example, if a stock is trading at $50 per share, and the company pays a quarterly dividend of 20 cents per share. That company’s dividend would be 80 cents. Divide 80 cents by $50 per share to arrive at a dividend yield of 1.6%.
Why Is Dividend Yield Important?
Dividend yield helps investors understand their total return on a stock investment. It’s something investors need to take into consideration when choosing which stocks to buy.
If you are investing for income, you’ll want to find stocks that deliver reliable dividends and rich dividend yields. If a stock’s dividend is increasing, this usually indicates the company is in good financial health. But just as important is a sustained track record of increasing dividends over the course of years and even decades.
Dividends can boost your overall returns, giving you the added benefit of compounding. Compounding can dramatically increase your investment returns over the long run.
When Are Dividends Paid?
Depending on the company, dividends will be paid on a monthly, quarterly or annual basis. With regard to payments, there are three terms a dividend investor needs to know.
- Declaration date is when the company or its board announces that a dividend will be paid.
- Ex-dividend date is the date by which an investor must own the company’s stock to receive a dividend. Investors won’t receive a dividend from the company if they buy that company’s shares on or after the ex-dividend date.
- Payment date is the date on which the company’s shareholders will receive their dividend.
Generally, if you own a company’s stock by the ex-dividend date, you will receive that company’s dividend payment.\
How Are Dividends Taxed?
There are two types of dividends: qualified and ordinary dividends. The difference comes down to taxation: Ordinary dividends are taxed at your marginal income tax rate, while qualified dividends receive more favorable tax treatment.
Qualified dividends are paid by U.S. corporations and some foreign corporations with tax treaties with the U.S. They are eligible for long-term capital gains tax rates. In order to benefit from the lower rates, you must own common shares for at least 60 days before the ex-dividend date.
Income from prdinary dividends, also known as non-qualified dividends, are taxed at your marginal income tax rate. They include dividends from real estate investment trusts, employee stock options and certain foreign corporations, among others.
What Are Dividend Stocks?
Dividend stocks are public companies that distribute a portion of their profits to shareholders in the form of dividends. With stocks that do not pay dividends, investors profit from changes in the stock’s price, where dividend stocks offer an additional income stream.
Investors seeking steady income and potentially lower volatility may find dividend stocks attractive. You can find the best dividend stocks in market sectors like utilities, consumer goods, healthcare and financials. Companies that consistently raise their dividends over time are known as dividend aristocrats, which can be particularly appealing to income-focused investors seeking long-term stability and growth.
Just remember, dividend payments are not guaranteed. The stock price can also fluctuate, impacting the overall return on investment. As with any investment, thorough research and a well-balanced portfolio strategy are essential when considering dividend stocks.
Frequently Asked Questions (FAQs)
Do all stocks pay dividends?
Not all stocks pay dividends. More established companies in certain industries—such as telecommunications, utilities, consumer staples, energy and real estate—are most likely to pay dividends.
How are dividends taxed?
Dividends can be taxed either as qualified dividends or ordinary dividends.
Qualified dividends are from companies traded on a U.S. stock exchange. Investors in the 10% to 15% tax bracket don’t pay taxes on these dividends. Those in the 15% to 37% tax bracket pay 15%, and those at the 37% tax rate pay 20%.
Ordinary dividends—which are from foreign companies not listed on a major U.S. stock exchange, REITs, employee stock benefits and tax-exempt companies—are taxed at an individual’s regular tax bracket rate.
What is a DRIP, a dividend reinvestment plan?
A dividend reinvestment plan allows you to automatically purchase new shares of a company’s stock when you receive that company’s dividend.
Are high dividend yields good?
There are two red flags to look out for with high dividend yields. The first is that a dramatic increase in yield could be due to a company’s share price plummeting. The second may be that a struggling company might be attempting to woo new investors.
Lower, consistent dividend yields tend to be better than either of these options.
What are the best stocks for dividend yield?
The best stocks for dividend payments are the dividend aristocrats. These stocks have consistently raised their dividend payouts for decades.
