There are two primary ways to invest in a company -- through stocks or bonds. Bonds are a form of debt to the company, whereas stocks represent a share of ownership. While bonds pay a rate of interest to compensate you for the use of funds, stocks compensate investors with share price appreciation and dividends that usually are paid out on a quarterly basis.
The Board of Directors
The board of directors is responsible for ratifying dividend payments, from the amount of the payment to the date on which the dividends are paid. The date of declaration is set on the day the board of directors announces the dividend, and the date of record is determined to be some time after this date, also determined by the board of directors. To receive the dividend, you must be on the books on the date of record.
The company contacts the National Association of Securities Dealers to set the ex-dividend date, which is set two days before the date of record. If you purchase the stock on or after the ex-dividend date, the seller gets the dividend payment. This is why some companies refer to their dividends as trading ex-dividend.
Most companies pay out a dividend at the end of each quarter in what is called the quarterly dividend. Companies are reluctant to raise the dividend, as it sends a negative signal to the market when companies decrease the dividend. Additionally, many people depend on dividends for income and rely on its stability over time. Most would prefer that the dividend payment remain the same over time rather than go up and down.
At the end of the year, analysts can sum up all dividend payments for a total annual dividend payment. For instance, if the company pays out a dividend of 25 cents every quarter, the annual dividend is $1. If it is not the end of the year, analysts report what is called the year-to-date (YTD) dividend, which is the total number of dividends paid to date. If you received only three dividend payments in the first 11 months of owning the stock, the YTD dividend payment is 75 cents.
James Collins has worked as a freelance writer since 2005. His work appears online, focusing on business and financial topics. He holds a Bachelor of Science in horticulture science from Pennsylvania State University.