Unpaid Dividend

  

Categories: Stocks

The company declared it on November 17th. They said they'd pay it January 15th. It is owed. Legally. No matter what.

As of November 18th, it's unpaid. It lives on the balance sheet as Obligations Payable or Dividends Payable or something like that. And, as soon as its paid, well...then it's over. The divvy is sent out; investors smile, and they wait 90 more days until the next one hits.

Related or Semi-related Video

Finance: What are dividends, and how do ...4 Views

00:00

Finance Allah shmoop what our dividends and how do they

00:05

affect stock prices Well guess what People they help That's

00:12

how they affect stock prices Well what are they What

00:15

are dividends Well they're usually paid in cash to shareholders

00:19

of record I legally if you own the stock than

00:23

you're entitled to the dividend that is if you were

00:25

In fact according to the brokerage where you held these

00:28

shares the owner of record as of say June fifteenth

00:32

then you too will receive a dividend of twelve cents

00:35

for each share you own payable on July twenty eighth

00:39

or something like that So dividends are declared at will

00:42

by the board of the company and are usually the

00:45

domain of well heeled already established large companies with so

00:49

much excess cash profits that the more or less don't

00:52

know what else to do with it A T and

00:54

T Coke Disney Apple They all pay huge dollar amounts

00:58

in aggregate total dividends Some have done so for a

01:01

hundred years or more like a T Others like Apple

01:05

just started Apple had just passed one hundred billion dollars

01:08

in cash on their balance sheet when finally shareholders said

01:13

Hey what about some of that cash for me So

01:16

they're at least two logical ways to think about dividends

01:18

offense and defense from an offensive perspective And you know

01:22

we love being offensive here It shmoop central dividends Add

01:26

to the compound ing of stock returns like Tongue Guards

01:29

Inc has grown in share price six percent a year

01:32

kind of meth performance flood It has had a three

01:34

percent dividend and it keeps raising that dividend each year

01:38

So combined that stock is delivering total return of nine

01:43

percent better than in ten years The six percent compound

01:47

ER would grow to one point Owe six to the

01:50

tenth power or about one point eight acts Not quite

01:52

double But if it compounded at one point o nine

01:56

to the tenth power well it is grown to two

01:59

point four acts like before two and a half times

02:01

as much money as you started with a decade earlier

02:04

right or in an initial thousand dollar investment What you'd

02:07

have twenty four hundred dollars minus the eighteen hundred dollars

02:10

or six hundred dollars Mohr with dividends in there and

02:13

gas were rounding dramatically and the dividends get raised each

02:16

year Bottom line Just dividends are good they add to

02:18

your total return We're ignoring taxes also here and we're

02:21

ignoring the possibility that you could directly reinvest those dividends

02:25

Taub I'm or shares of that stock which would then

02:27

have even Mohr Power incom pounding All right But that's

02:31

offense What about defense Like your young you want to

02:34

own stocks for thirty years but you're afraid of the

02:37

downside The dark side the century stocks right That's one

02:41

of stock goes down one hundred percent Yeah well stocks

02:43

that pay a dividend rarely if ever go fully bust

02:46

for them to have gotten to that happy place where

02:48

they pay a divvy They're probably a pretty well established

02:51

domain owner or at least one point had enough excess

02:54

cash to distribute back to its owners in the form

02:56

of a dividend But there's another even better defensive thing

02:59

that dividend paying stocks offer That is they are cushions

03:03

in a bad market And the number of feathers in

03:05

that cushion is metered or measured by what's called the

03:08

payout ratio which is the percentage of earnings that a

03:11

company is paying out in dividends That is if the

03:15

company is earning a dollar a share in his paying

03:17

out thirty cents a share in DV dollars while their

03:20

payout ratio is only thirty percent So their earnings could

03:24

drop a lot and they'd still easily be ableto pay

03:27

their thirty cent dividend But if they're ratio was more

03:30

like eighty percent like they earned a dollar and they're

03:33

paying eighty cents in dividend dough than Ooh that's tight

03:37

If earnings dropped well even a quarter the company would

03:40

be paying out Maurin dividend payments than they have earnings

03:43

And this has happened in spades with modern day oil

03:46

industry who had to borrow money to be able to

03:49

continue to pay its dividend and not cut it Why

03:51

such a stretch and all the effort to not cut

03:54

the divvy Well because Wall Street views a dividend is

03:57

a kind of commitment like a promise ring It means

03:59

you are fully off tinder and match and J date

04:03

So if you ever cut or do away with your

04:05

divvy the management is usually all fired with their careers

04:09

pretty much oriented toward the uber you know driving them

04:12

not running a company like Doria Well look at what

04:14

happened to G E in the modern era when they

04:17

cut their dividend Yeah Ouch But let's say the whole

04:20

market craps out you know bad economic cycle or whatever

04:23

and our company goes from earning a dollars shared only

04:25

seventy cents and the stock goes from twenty bucks a

04:28

share to ten Well then it's payout ratio in that

04:31

thirty cent dividend world is now thirty over seventy or

04:35

forty three percent payout ratio It's higher payout ratio than

04:38

it wass but still presumably really safe to continue going

04:42

Maybe they won't raise it again this year but it's

04:44

not going away And on twenty bucks a share A

04:46

thirty cents of Devi well then was only yielding one

04:49

point five percent Pretty small Davey But now at ten

04:52

bucks a share and thirty of Debbie Well it's yielding

04:55

thirty cents over ten dollars or three percent Well with

04:58

Treasury Bills yielding about the same amount they quote on

05:01

ly unquote bet you have to make and buying that

05:04

stock is if it won't cut The dividend comes up

05:06

You get more money and dividends that air pretty safe

05:09

Well you feel pretty good about buying stock if you're

05:11

gonna hold it along And if they don't cut the

05:13

Davy well you not only get a low price to

05:15

earnings multiple stock likely with a lot of price appreciation

05:19

in the future but you get a more tax efficient

05:21

cash piece coming back to you How our dividends Mohr

05:24

tax efficient Well bonds or tax as ordinary income think

05:29

forty or fifty percent for hire Taxpayers in blue states

05:32

while qualified equity dividends are tax that much lower rates

05:37

like half that rate in twenty twenty five percent Something

05:39

like that So three percent on bonds nets the big

05:42

taxpayers one point five percent and three percent on Davies

05:45

And that's more like two and a quarter percent something

05:48

like that Seventy five more basis points toe like you

05:51

know buy a lot with anyway Dividends They're good They

05:54

cushion stocks in the bad times and they add your

05:56

compound returns and you want to come pound at a

05:59

really high rate Kind of like you're compounding your lock 00:06:03.527 --> [endTime] Yeah Yeah

Up Next

Finance: What are Dividends: Declaration date, Dated date, Pay date, Effective Date, Ex-Distribution Date, Ex-Date, and Reset Date?
15 Views

What are Dividends: Declaration date, Dated date, Pay date, Effective date, Ex-distribution date, Ex-Date, and Reset date? Dividends are sums of mo...

Finance: What is an Accumulated Dividend?
9 Views

What is an Accumulated Dividend? Accumulated dividends are dividends paid on cumulative preferred stock. They are referred to as accumulated becaus...

Finance: What is the Math of Dividend Reinvestment?
2 Views

What is the Math of Dividend Reinvestment? When deciding to reinvest dividend proceeds from a stock into purchases of additional stock, the fractio...

Find other enlightening terms in Shmoop Finance Genius Bar(f)