One method companies use to try and attract investors is offering them a dividend. The three main types of of dividends are cash, stock, and property with cash being the most common. An example of a dividend stock is Apple Inc. (NASD: AAAPL), the company annually gives its investors $2.52 for every share that they own.
For the most part, cash dividends are distributed on a quarterly basis, but that could vary depending on the firm with some dividend stocks paying out monthly.
By investing in a dividend stock, an investor has the potential to make money from the stock price rising as well as earn income from the dividend.
The above image is a list of the largest publicly traded companies in the U.S. stock market, notice that the majority of them pay a dividend to investors.
The dividend yield is expressed in percentage terms, to calculate it, simply take the annual dividend and divide it by the stock price. When a company distributes a cash dividend it returns capital back to its shareholders.
How Dividend Stocks Work
There are two dates that matter when it comes to dividends. The “record date” and the “ex-date.”
A company declares a dividend, and then sets the record date. It simply means that you must be a shareholder by that date in order to receive the dividend. The ex-date is the day you’ll receive the dividend. It’s usually set one business day before the record date. If you buy stock on the ex-date or after, you won’t be able to participate in the dividend distribution.
Examples of Dividend Stocks
Exxon Mobil (NYSE: XOM) pays investors $3.08 per share on an annual basis.
Source: Yahoo Finance
The Top Tech Dividend Stocks
Apple Inc (NASD: AAPL) the largest publicly traded company in the world, the iPhone maker gives its investors an annual dividend of $2.52 per share.
Microsoft (NASD: MSFT) a member of the Dow Jones Industrial Average (DJIA), this software giant pays its investors $1.68 per share, annually.
Intel (NASD: INTC) also a member of the DJIA, this chip maker rewards shareholders by paying them $1.20 per share, annually.
The Best Bank Dividend Stocks
JPMorgan Chase (NYSE: JPM) the largest bank in the market based on market cap, the firm pays out a $2.24 annual dividend.
Bank of America (NYSE:BAC) a member of the S&P 500, Bank of America pays out an annual dividend of $0.48 per share.
Citigroup Inc (NYSE: C) also a member of the S&P 500, this money center bank pays out an annual dividend of $1.28 per share.
The Best Energy Dividend Stocks
Exxon Mobil Corporation (NYSE: XOM) this oil producer is a member of the DJIA and the S&P 500, the company pays out an annual dividend of $3.08 per share.
Royal Dutch Shell plc (NYSE:RDS-A) based out of the Netherlands, this independent oil and gas company pays out an annual dividend of $3.76 per share.
Chevron Corporation (NYSE: CVX) A major player in the energy space, Chevron is a member of the DJIA and the S&P 500. The firm pays out an annual dividend of $4.48 to its investors.
The Best Healthcare Dividend Stocks
Johnson & Johnson (NYSE: JNJ) the maker of Tylenol and the BAND-AID, Johnson & Johnson pays out an annual dividend of $3.36 .
Pfizer Inc. (NYSE: PFE) this drug maker is a member of the DJIA and S&P 500, it pays investors a dividend of $1.36 per share, on an annual basis.
United Health Group Incorporated (NYSE: UNH) the largest healthcare planner that’s publicly traded, it pays investors of the stock an annual dividend of $3.00 per share, annually.
ETFs offer a quick and easy way for investors to gain exposure to dividend stocks.
Here are some of the most actively traded ones:
Vanguard High Dividend Yield ETF (NYSE: VYM) this ETF tracks the performance of the FTSE High Dividend Yield Index, which measures the investment return of common stocks that have a high dividend yield.
Some of the funds top holdings include: Microsoft; JPMorgan Chase; Johnson & Johnson; Exxon Mobil Corp; Wells Fargo; Chevron Corp; AT&T; Intel; Procter & Gamble; and Verizon.
Schwab US Dividend Equity ETF (NYSE: SCHD) this ETF tracks the total return of the Dow Jones U.S. Dividend 100 Index, minus expenses and fees.
Some of its top holdings include: Intel; Microsoft; Boeing; Pfizer; Home Depot; Verizon Communications; Johnson & Johnson; Coca Cola; Exxon Mobil; and DowDupont.
Source: Charles Schwab & Co.
The fund pays its investors an annual dividend of $1.26 per share.
Vanguard Dividend Appreciation ETF (NYSE: VIG) this ETF attempts to track the performance of the NASDAQ US Dividend Achievers Select Index.
The fund invests in over 170 stocks. Some of its top holdings include: Microsoft; Johnson & Johnson; PepsiCo; 3M; Medtronic plc; United Technologies; Texas Instruments; Union Pacific; Abbott Laboratories; and Accenture plc.
The fund pays out an annual dividend of $1.82 per share to its investors.
iShares Core Dividend Growth ETF (NASD: DVY) this ETF gives investors exposure to US companies with a strong record of dividend distributions.
Some of its largest holdings include: Lockheed Martin; CME Group; Caterpillar; Nextera Energy; McDonalds; Chevron; Phillip Morris; Valero Energy; Energy Corp; and Lazard.
The fund pays investors an annual dividend of $2.94 per share.
Why Some Companies Chose Not To Pay Dividend
It’s true, many of the largest companies do payout dividends. However, there are still some plenty well known corporations that don’t. For example, Facebook, Amazon, and Alphabet do not pay a dividend.
Warren Buffett is considered by many to be one of the greatest investors of his generation. Its been reported in the past that he was earning $6,731 in dividend income per minute. However, when it comes to his own company, he doesn’t distribute dividends to his shareholders.
You see, in order for a company to distribute a dividend it must have the cash. That said, giving that cash back to investors might not be the wisest decision.
For example, that money could be used for research and development, mergers and acquisitions, to hire new personnel and expand business, and stock buybacks.
Now, if a corporation is still in its growth stage, its better for them to use that capital to improve the business. On the other hand, some companies like AT&T find it harder to experience growth, for them, paying out a dividend is an attractive way to lure in investors.
Dividends are attractive to investors because they receive income. However, investing in a stock because they have a dividend alone, or a high yield, is not enough to justify an investment. After all, a dividend is not a gaurantee, if the company’s fundamentals sour they may chose to cut the dividend or eliminate it.
There are still plenty of great performing stocks that don’t pay a dividend– Facebook, Tesla, Amazon, and Berkshire Hathaway to name a few.
Should you ignore these companies because they don’t pay a dividend?
Consider a dividend, the cherry on top of a sundae. And as with any investment, make sure to do your own due diligence.