Question 1

What is dividend yield and how is it calculated?

Accepted Answer

Dividend yield = annual dividend per share ÷ current stock price × 100. For example, a stock paying $2.00/year that trades at $50 has a 4% yield. Yield rises when the price falls, so a very high yield can sometimes signal financial stress rather than generosity.

Question 2

What is a good dividend yield?

Accepted Answer

Yields of 2–5% are generally considered healthy for income-oriented investors. Yields above 6–7% warrant extra scrutiny — they may reflect a depressed stock price or a dividend at risk of being cut. Growth stocks often pay little or no dividend, reinvesting profits instead.

Question 3

What is the ex-dividend date?

Accepted Answer

The ex-dividend date is the cutoff: you must own shares before this date to receive the upcoming dividend payment. If you buy on or after the ex-date, the dividend goes to the prior owner. The stock price typically drops by roughly the dividend amount on the ex-date.

Question 4

What is the payout ratio and why does it matter?

Accepted Answer

Payout ratio = dividends paid ÷ net income. A ratio below 60% is widely considered sustainable because the company retains enough earnings to reinvest in growth and weather downturns. A ratio above 100% means the company is paying out more than it earns, which is unsustainable long-term.

Question 5

Can a company cut or eliminate its dividend?

Accepted Answer

Yes. Companies reduce or suspend dividends when earnings fall, cash is needed for debt repayment, or management wants to fund acquisitions. A dividend cut is typically followed by a sharp stock-price decline. REITs and utilities cut dividends less often because their cash flows are regulated or contractual.

Question 6

How often are dividends paid?

Accepted Answer

Most U.S. stocks pay dividends quarterly. Monthly payers are common among REITs and certain ETFs. Some international companies pay semi-annually or annually. Special one-time dividends are also occasionally declared when a company has excess cash.

MU Dividend Yield & History