How do I make money from dividends?

A dividend is a share of the company’s profit paid out in cash to shareholders, usually every quarter. If a company pays $1 per share per year and you own 100 shares, you receive $100 that year, in four payments of $25, deposited straight into your brokerage account. You do nothing to earn it except own the shares.

The mechanics have a few dates. The company announces the dividend, sets an ex-dividend date, and pays a few weeks later. You must own the shares before the ex-dividend date to get that payment. Buy on or after it and the seller keeps the dividend.

The way this becomes real money is reinvestment. Most brokers can automatically use each dividend to buy more shares, called a DRIP. Those new shares pay dividends of their own, and over decades the compounding is substantial. A large share of the stock market’s long-run return has come from reinvested dividends rather than price gains alone.

What to watch: a very high dividend yield is often a warning that the price has fallen because investors expect the payment to be cut. Companies with a long record of steady increases tend to be the safer bet than those with the biggest current yield.