How do stock dividends work?
Companies generally pay dividends in cash to the shareholder’s brokerage account, though some pay dividends in new shares of stock instead. Companies may also offer dividend reinvestment programs, called DRIPs, which allow investors to reinvest the dividend back into the company’s stock, often at a discount.
The ex-dividend date is extremely important to investors: Investors must own the stock by that date to receive the dividend. Investors who purchase the stock after the ex-dividend date will not be eligible to receive the dividend. Investors who sell the stock after the ex-dividend date are still entitled to receive the dividend because they owned the shares as of the ex-dividend date.
One note: Investors who don’t want to research and pick individual dividend stocks to invest in might be interested in dividend mutual funds and exchange-traded funds. These funds hold many dividend stocks within one investment and distribute dividends to investors from those holdings.