What is a dividend?

The dividend is the part of the profits of a company that is shared with its shareholders, as a form of bonus to the investment made.

By acquiring a share, the shareholder becomes part of the company and has rights to the earnings it has. Dividends can be paid in cash, as well as in the form of additional shares, that is, an “additional part” of the company to shareholders.

How Dividends Are Paid

At the end of the company’s financial year, typically by year, semester, or quarter, expenses and income for the period are measured, including the amount that must be paid to the government in the form of taxes.

If there is a profit, the company’s board of directors decides how much to distribute, considering that in Brazil it is mandatory for corporations to distribute at least 25% of the profit to shareholders. The less dividends you pay, it may mean that the company intends to reinvest in its activities.

To the registered shareholders of the company, the amounts corresponding to their parts are transferred, which means that each receives a fixed amount per share acquired, or it is calculated as a percentage.

How to calculate dividend yield

One way to find out what the significant dividend return was is by calculating the  dividend yield  (DY), a percentage indicator that expresses how much investors have achieved in the period.

To calculate the DY, simply divide the amount of the dividend per share in the period, by the price that is quoted in the market.

If, for example, a company like the Bank of Brazil (BBAS3) distributes R $ 7.00 per share, and at this moment the stock market is trading at R $ 43.00, it means that dividends yield 16.28% ( R $ 7.00 / R $ 43.00 x 100%).

A very high dividend yield may also indicate that this stock is a weak commodity in the financial market, as it is priced too low.

Dividend payment date

When approved by the board of directors, the amount of the dividend must be paid within a period announced by the company.

The deadline date serves as the last day on which the shares pay dividends and, as of that date, they circulate again in the market without the right to the announced dividends, known as “Ex-dividends”.

For example, if a share is offered in the market at R $ 30.00 each, the last day will be for a dividend payment of R $ 2.00 per share. The next business day, the floor of the stock market reopens with this same share traded in the form of an ex dividend in the amount of R $ 28.00.

Considering the example, if a shareholder owned 300 shares of this company, obtaining an asset for an amount of R $ 9,000.00 (300 x R $ 30.00), the next business day begins with the same value of the asset, however with R $ 8,400 .00 in shares and the remaining R $ 600.00 in rights receivable.

Dividend reinvestment

There are investors in the stock market who prefer to reinvest their dividends in buying more shares in the same company.

This is so that there is a compound interest benefit   , or interest rate, reallocating the profit you made from the shares you acquired, for an additional profit on the company’s next dividend distribution.