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Bristol-Myers Squibb Company Message Board

  • us_army_airborne_sean us_army_airborne_sean Jun 18, 2009 5:58 AM Flag

    Dumb Question about Dividends

    Can someone break down how dividends work, dummy style?

    I heard someone say that - say you own a stock worth $20, if you receive a $2 dollar dividend payment your stock is now worth $18.

    That seems worthless to me so it doesn't make sense. On the other hand, receiving $2 per share with no drawback seems too good to be true.

    So if you could please explain how it works. I'm new to investing so pretend I'm five years old when you explain it.


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    • Army first dividends are determined by the board of directors. Generally speaking only the mature companies pay div's, younger growth companies usually plow the profits back in to grow the co. Second not all dividends are equal many in this day and age have and are at risk of being cut, check out profitability, cash on hand, and history of payouts all of this information is available here on Yahoo and can be found in a matter of minutes.
      As for the the dividend pay out and the price of the stock, remember it takes three days for clearing process for you to become holder of record, and eligable to recieve the payout. If you are inclined it is not difficult to look up and back test how the stock responded to the payout. Many a man has tried a dividend capture system and as far as I have seen with mixed results. It's work figuring this stuff out and if you don't like it or refuse to do it, go to a mutual fund or ETF. GOOD LUCK

      • 1 Reply to abuck395
      • Not real bright here. But the way I see it is.

        I look for stocks that don't only pay a dividend but also raise their dividends at least once a year.I also diversify my holdings.

        NRGY now cost about $25. a share they pay a dividend of $2.62 a year[they also give a raise every 3 months]
        But lets say you bought 1 Share at $25. and received the dividend st $2.62 a year, without any raises.Well in less than 10 years you spent you money and still have your stock too.While the stock price may go up and down before and after the dividends are paid.Well that doesn't mean your stock is gone after you got your money back .
        Take a look at the history of the dividends and price change here:
        Here are few more that I have:


        I hope that helped and best of luck to you.

    • Airborne:

      You should probably not invest in individual stocks. Look at ETF's instead because they will spread your risk.


    • What you heard someone say in the example mentioned is true. A $10 stock with a .25 dividend becomes a $9.75 stock immediately upon ex-dividend day, just like a $100 stock with a $4 dividend becomes a $96 stock. Stocks often return to their pre-dividend value and more, but not always.

      Note: Sorry, this is designed for a 7-year-old. Couldn't quite bring it down to the 5-year-old level.

    • First, dividends are typically taxed at lower rate than capital gains of stock sold under a year for profit.

      Second, stock prices adjust after the dividend payment to a price lower by the dividend, but they dont need to stay there. over a long period of time a company paying out a responsible dividend (without hurting its cash flow) would do well in business so if you hold the stock over a long period (over 5 yrs at least) then you will gain good benefits.
      Of course there are lot of other factors which affect prices...
      you can read more about these by searching at and

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