Identification

• Corporations pay dividends to their shareholders out of business earnings. Dividend payments are generally paid quarterly and the payment schedule includes ex-dividend and payable dates. You must purchase and hold shares of stock before and through their ex-dividend date in order to receive dividends by the next quarterly payable date. You may contact a corporation's investor relations department for specific dividend schedule information.
  
  

Features

• Dividend yield is a statistic that is comparable to a rate of interest, as it gauges the amount of income that you can expect to receive out of an investment. Taken as a percentage, you divide a stock's expected annual dividend by its current share price to calculate dividend yield. For example, a $100 stock that pays $4 worth of annual dividends features a 4 percent dividend yield. If you invest $1,000 into this stock, you can expect to collect $40 in dividend payments over the next year.
  
  Smaller companies generally pay low dividends, if any. These companies are more likely to reinvest their earnings back into the business for growth. Mature businesses, however, have less growth opportunities and therefore compensate shareholders with significant dividend payments.
  
  

Considerations

• For tax purposes, you will categorize dividends as either ordinary or qualified dividends. Ordinary dividends are taxed at ordinary tax rates. As of 2010, your ordinary dividends may be taxed at 10, 15, 25, 28, 33 or 35 percent rates. Qualified dividends, however, are either tax-free or taxed at a 15 percent rate. For your dividends to qualify, you must own shares of stock for more than 60 out of the 120 days centered upon their ex-dividend date. As a single filer, your qualified dividends will be tax free if your taxable income is less than $34,000.
  
  

Misconceptions

• For corporations, interest payments on bonds and money market securities are tax-deductible expenses. Dividend payments, however, are paid out of earnings and do not carry any tax breaks for corporations. As an investor, you can read through a corporation's annual report to see how it accounts for bond interest and cash dividends on shares. These payments are summarized on the net income and cash flow statements.
  
  

Warning

• Corporations pay dividends at their discretion. A quoted dividend may never materialize, because it can be significantly reduced or eliminated when business profits fall. Low cash balances, high amounts of debt and weak sales often foreshadow dividend cuts and bankruptcy. Corporations that can grow long-term profits usually make stable dividend payments.