Trading 101: What is a Dividend?

one of the first questions I ever asked when I was getting a little bit more into the stock market was what is a dividend so I figure there's probably other people out there that are wondering the same thing let's break it down before I get into this I do have some other videos though in terms of what is the stock market how does it work so if you're not even familiar with how that stuff all unfolds and definitely watch those videos first and also I use a whole pizza analogy in those videos so for those of you that have been going through the videos I want to kind of carry that analogy through so we're going to talk about pizza here again and you know help use that to help explain how a dividend works what a dividend actually is so again as we've been discussing the market is just a big pizza market there's slices of pizza and that's what allows you to get ownership into a pizza but a dividend is essentially just thank you it's a company's way of telling you hey thank you but instead of just having to be empty words companies will actually kind of quote unquote put their money where their mouth is so it's basically a thank you card that comes with some cash in it and that is what a dividend now what are they saying thank you for well if you are buying and if you have bought I should say a slice of their pizza and then you hold on to it or in other words you know you put into your portfolio and you are an investor so you buy a slice of pizza so we'll say you got some pepperoni pizza and now you are just holding it or in kind of investment terms you are an investor you are an investor in you know the pepperoni pizza you are investing you know this would be an investment all those different words would fit together now the company and we'll just say you know we'll call it you know PEP which is a ticker symbol meaning just the name of the company for short PEP is as I notice they're saying hey you know this person is holding they're holding their an investor in our company we want to show them thank you so what a lot of established companies do now not all company so this is something that you would always want to make and check or check for first to make sure that they do offer it but is they're gonna offer a dividend and again a dividend just think of think about that as you know a thank you card that shows up with money into it but before you ever buy a slice of a company they're gonna tell you upfront what they pay what they're think you rate is and for this let's just say that their thank-you rate is you know what for every slice of pizza that you have we're gonna pay you a dollar 25 per year now that doesn't sound like a lot if it's just one slice of pizza but remember with shares you can get a lot in a lot of shares so that can start to add back up but that is what the dividend would be called or this is what the dividend would be just a dollar 25 they're gonna pay you per year to just hold on to hang on to that chair being an investor in it you know have it as a long-term investment so this is like you said that's called the dividend and then this is paid usually quarterly meaning four times a year they're gonna pay that now this is broken down so that's the yearly amount but four times a year usually is when they're gonna divide that up and you know send that to you as you know a dividend payment and now Melissa I say quarterly but in other instances I know there's one out there that will pay it every month so the assumption is I should say the safe assumption four times a year quarterly but every company may be a little different but the point here being that's what they're paying you to hold on to you know their slice of pizza they're saying hey thank you very much for being an investor we want to pay you that so maybe you've heard of this too you know well people are talking about a dividend yield what is a dividend yield well that's just the way to you know assign the percentage to what the investments actually paying you in regards to the dividend and that's just a very basic equation and the equation is let's change up the covers here so or what is what did I want to call not that's the second yeah I sit here and say that the equations simple and I can't even remember it but it's gonna be the thank you amount so in this case we'll use a dollar twenty-five but it's that thank you amount otherwise known as the dividend and then it's just gonna be divided by the price per share or another original price per slice so with our analogy price per slice but actually it's gonna be the price per share if you want to use you know stock market lingo so for our example let's just say that thirty five dollars so right now a piece of pepperoni pizzas trading for thirty five dollars well we already know that what the dividend is is a dollar twenty-five so 125 divided by 35 is I don't know what that is you can just keep it running that's fine so 125 divided by 35 is 0.03 five seven you want to multiply that by a hundred just so you can convert it into a percentage and that would be a three point five seven percent yield so if you want to sound a super smart do it without a calculator if you want to look really smart but I'm not that smart so you want to sound smart with your friends so just say yeah you know I bought some pepperoni pizza and the dividend yield is three point five seven percent they're probably like they're gonna if you want to get some girls that's what you that's what you talk to about girls they're all about you know if you can talk like smart with them and that to me that's pretty smart is yeah I bought some pepperoni pizza it's given me a three point five seven percent dividend yield they're gonna just be like marry me right now it's gonna be just try it try it but point here bean that's what a dividend is it's simply a company said hey thank you for being an investor and then if you want to calculate the actual percentage the yield that you're getting for making an investment you know just that basic equation don't forget to multiply it by 100 so you can convert it into the percentage and then you can go talk to girls and tell them about that stuff and it's gonna be a great way to just have them fighting over you so any questions I think I've explained it pretty good but there are any other questions leave the comments down below I do read the comments I will reply to them and I'll get anything cleared up but again just to one final thing remember I just want through this to keep the math easy but most times you're gonna have many many many pieces of pizza you're gonna have many shares that you have so the dollar 25 will add up over time and that's the whole thing our dividend strategy is not a good rich quick thing by any means it is something meant for investing over the long haul and then you have the power of compounding and all those different attributes that maybe you've learned about math that really go into play and then this is gonna build wealth slowly over time so I don't want to come across like hey dividends are a great way to get rich next week and you can go buy nothing like that this is a long term strategy but it's a strategy that's worked it's proof it's proven to work I mean there's plenty of data there's plenty of studies out there that show dividend stocks while boring over the long haul they are gonna build wealth because of you know just the company saying hey thank you we want it we want to give you some money for hanging onto our stock so hope you found this helpful as always if you have any suggestions for other kind of very basic videos for the market I'm always looking for suggestions so you can also leave those in the comments section below but again let me know if you do have any questions for this and hopefully it can help you out

Channel: ClayTrader

Views: 611,650

Keywords: Dividend, Dividend What Is, Dividend Learn, Dividend Stock, Dividend Option, Dividend Investing, Dividend Payout, Dividend Ratio, Dividend ClayTrader

Id: _sPVwmGFAiA

Length: 8min 5sec (485 seconds)

Published: Fri Nov 04 2016