How Dividends Work
The board of directors proposes a dividend; shareholders approve it at the Annual General Meeting (AGM). Key dates: the ex-dividend date (own shares before this to qualify) and the payment date (when cash arrives in your account).
On the ex-dividend date the share price typically falls by approximately the dividend amount, reflecting that new buyers are no longer entitled to that payment.
Calculating Dividend Yield
Formula: (Annual dividend per share ÷ Current share price) × 100
Example: share price $50, annual dividend $2.50 → yield = 5%. This tells you that for every $100 invested you receive $5 in annual dividends.
A very high yield (above 8–10%) often signals a falling share price rather than exceptional generosity. Always investigate the cause before chasing yield.
Dividend Investing Strategy
Dividend investing targets companies with consistent, growing dividend payments to build a passive income stream. Reinvesting dividends (DRIP) accelerates compounding significantly over time.
Sectors historically associated with reliable dividends include utilities, consumer staples, telecoms and financials. Growth-stage tech companies rarely pay dividends, preferring to reinvest profits.