How Dividends Work — in plain English

Think of a dividend like rent your shares collect. The company runs its business, makes cash, andif the board approvespays you a slice per share.

1. What it is
Cash per share authorized by the board.
Funded by profits and free cash flow.
Not guaranteed; in the US its often quarterly.

2. The timeline
Declaration: amount and dates announced.
Ex?dividend: buy on/after this date and you wont get the upcoming dividend.
Record: who officially gets it.
Payment: cash hits your account. Note: Price often drops by about the dividend on ex?date.

3. Key terms
Regular vs special dividends.
Qualified vs ordinary (tax treatment differs).
DRIP: automatically reinvests dividends into more shares.

4. Metrics that matter
Yield = annual dividend share price.
Payout ratio (EPS) = dividends per share EPS.
Coverage = FCF total dividends (aim for 1.5).
Dividend growth (CAGR) over time.

5. Risk flags
Very high yield with falling earnings/FCF.
Payout 80100% for long.
Negative/volatile FCF, heavy capex.
High leverage; weak interest coverage.

Quick example (illustrative): Apple paid $0.25 quarterly in 2024 ($1.00/year). At $200, yield is 0.5%.

If EPS were ~$6.50, payout 15%.

Low yield, strong safety.

Simple, right?

Dont chase the biggest yield. Aim for steady payers with room to grow, healthy coverage, and clean balance sheets.