SIE (Training Consultants v3.5, 2025): Ch. 1 Equity Securities, Sec. 7 - Dividends on Common Stock and Preferred Stock

Dividend

A portion of a company’s net profit distributed to stockholders; may be paid in cash, stock, property, or treasury stock.

Stock Dividend

A dividend paid in the company’s own previously unissued stock, often used when the company has a small cash balance.

Dividends Paid On

Common stock, preferred stock, mutual fund shares, and American Depositary Receipts (ADRs); not paid on warrants or bonds.

Qualified Cash Dividend

A cash dividend taxed at the federal, state, and local level; generally taxed at 15% federally.

Dividend Dates

Key dates relating to dividend payments, including Declaration Date, Ex-Dividend Date, Record Date, and Payable Date.

Declaration Date

The date on which a dividend is declared by resolution of the Board of Directors.

Ex-Dividend Date

The date on which the stock begins trading without the dividend; buyers on or after this date are not entitled to the dividend.

Record Date

The date on which the corporation updates its stock record book; shareholders on this date are entitled to receive the dividend.

Payable Date

The date the dividend is actually paid to investors; creates a taxable event for the year of payment.

Due Bill

A statement of money owed between broker-dealers to adjust for incorrect dividend payments.

Current Yield / Dividend Yield

Annual dividend divided by the current market price of the stock; measures the annual percentage return from investing in the stock.

What is a dividend?

A portion of a company’s net profit distributed to stockholders; can be cash, stock, property, or treasury stock.

Which securities typically pay dividends?

Common stock, preferred stock, mutual fund shares, and ADRs.

Do warrants or bonds pay dividends?

No, dividends are not paid on warrants or bonds.

What is a stock dividend?

A dividend paid in the company’s own previously unissued stock, often used when cash is limited.

What is a qualified cash dividend?

A cash dividend taxed at federal, state, and local levels; generally 15% federally.

What is the declaration date?

The date on which the Board of Directors declares a dividend.

What is the ex-dividend date?

The date when the stock trades without the dividend; buyers on or after this date are not entitled to the dividend.

What is the record date?

The date the corporation updates its stock record book to determine who is entitled to the dividend.

What is the payable date?

The date the dividend is actually paid to investors; it creates a taxable event.

What is a due bill?

A statement of money owed between broker-dealers to adjust for incorrect dividend payments.

How do you calculate current yield / dividend yield?

Annual dividend divided by the current market price of the stock.

If an investor is short stock, do they owe dividends?

Yes, short sellers owe dividends and stock splits.

How do you calculate the number of shares received in a stock dividend?

Multiply the number of shares owned by the dividend percentage.

How do you calculate the new market price after a stock dividend?

Divide the total value of the shares by the new total number of shares outstanding. #