How do Stock Dividends work exactly?

[Night201]

For example, PSE&G (Stock ticker: PEG)

it shows the following:

Div/Shr = 2.16
Yield = 6.30

What does that mean? How much do you get back?

Am I right in that the 6.30 is a % of the current share price which comes out to 2.16? That math works out, so what happens exactly on September 30 on their dividend date? Do you get 6.3% more shares or $2.16 more of their stock for every share you own (assuming you reinvest the dividends)?

 

[AU Tiger]

Can't answer your questions exactly, but do you own the stock directly or is it in a mutual fund? Some companies reinvest the dividends automatically for you, some mail you a check.

My mother in-law gets a $1000 check every quarter from one stock she owns. She calls it her traveling money.

 

[GasX]

Dividend yield is nothing more than a analysis tool. Companies make dividend annoucements at some time prior to each quarterly payout. They announce to the penny how much per share will be paid.

Dividends are reinvested only if you tell your broker (explicitly or by some default setting or rule on your account).

If you want crazy dividend yield, check out REI-A

 

[FeathersMcGraw]

Originally posted by: Night201

Div/Shr = 2.16
Yield = 6.30

What does that mean? How much do you get back?

The dividend/share is literally that: how much money you receive per share you own when a dividend is paid (I assume those figures are annual). As you figured, the yield is the dividend/share divided by the current share price, that is, what percentage of the stock price you make on a strictly cash basis for holding the stock.

Using a stock reinvestment plan, you will convert your dividends to additional shares (or fractions of shares) based on some formula -- you will have to read the plan details to determine how the plan establishes a share price for the reinvested funds. Some plans use an averaging of prices over a period of time, others may simply use the stock price at the time the dividends are issued.

 

[Night201]

Originally posted by: AU Tiger
Can't answer your questions exactly, but do you own the stock directly or is it in a mutual fund? Some companies reinvest the dividends automatically for you, some mail you a check. My mother in-law gets a $1000 check every quarter from one stock she owns. She calls it her traveling money.

I just recently bought the stock about 2.5 weeks ago and I have it set to autimatically reinvest the dividends.

 

[Woodie]

Dividends are usually paid in cash. You (your account) gets the $$ on the distribution date. The amount you get is the Div/Shr x (number of shares you owned on the RECORD date). The record date is typically 1-2 weeks prior to the distribution date.

If your broker/account is set to automatically reinvest any dividends, then they'll do it. (see earlier post).

Sometimes, a company will issue a stock dividend. This is often the case when the company is doing a stock split. The company is trying to manage the per-share price to a particular range. Take Citigroup (C). Over the last five years they've done ~3 stock splits, which are handled as stock dividends. Instead of getting $$ per share, you get x number of additional shares for every share you own. The market then adjusts to the greater number of shares outstanding, so the per share price drops.

Example:
C is trading @ $30.00 (1,000,000 shares outstanding, so market cap is $30 million.
They split 3:2 stock dividend.
The day the split occurs, the share price of C will move to: $20

If you held 100 shares ($3,000) before, the after you'll have: 150 shares (3 for every 2 you had), now worth ($20 x 150) = $3,000.

Customarily, dividends are announced on a quarterly basis, depending on the financial results. In practice, a company will NEVER stop paying cash dividends, as that is a sign that the company is in dire financial straits. Stock dividends are much rarer, and only mean that the company likes to keep their stock prices around a certain level.

 

[rahvin]

Every quarter generally a company will announce their revenue and will pay a dividend based on that revenue. This dividend is announced by the company but is usually known beforehand. For example, MO uses a base dividend of 7%. When this dividend is paid if you have dividend reinvestment you will purchase additional shares of stock with your dividend. This is usually commision free.