Bottom Line Up Front
- Dividends are payments you receive for saving or investing your money with a company.
- Credit union members receive dividends on their accounts that earn interest.
- Some companies pay dividends to shareholders on a regular basis.
When a company earns a profit, they sometimes share those profits with owners and shareholders. These payments, called dividends, are one way you can benefit from saving or investing your money with an organization. Here are some of the kinds of dividends you can earn.
Credit Union Dividends
When you join a credit union like Navy Federal, you become a member. Credit unions are unique in that they’re member-owned and not-for-profit. That means that any extra funds are returned to members as dividends, reduced loan interest and improved products and services.
At Navy Federal, certain accounts—such as checking and savings—will earn dividends. The dividends are a reward for the money you keep with the credit union. See the dividend rates on all Navy Federal’s savings accounts to learn how your money can earn more for you.
When you own a share of a company—whether through a stock, mutual fund or exchange-traded fund (ETF)—it may elect to pay out dividends, too. Not all companies pay dividends. They often come from well-established companies with more predictable profits. For companies that pay them, you’ll receive a payment for each share of stock you own. While some companies have a long track record of paying dividends, they’re not guaranteed.
Based on the company’s profits, its Board of Directors will determine how much the dividend will be per share. The company will announce, typically quarterly, the dividend amount. It will also announce what’s called the “record date” and the “payment date.” The record date is the date by which you must have been a shareholder to receive a payment. The payment date is just what it sounds like: the date you’ll receive the dividend payment. Once a company announces or “declares” a dividend, it’s legally required to pay it.
For example: A dividend is paid per share. If you own 50 shares in a company that pays $5 in yearly cash dividends, you’ll receive $250 a year.
You may receive dividends in the form of a check or as more shares of stock. You can choose to reinvest your dividend payment back into the company to continue adding to your investment. Reinvesting the dividends takes advantage of the benefit of compound growth and can add some stability from market fluctuations.
Keep in mind that dividends are considered taxable income. You’ll receive a 1099-DIV form from your financial institution if you received dividends and distributions during the year from investments other than IRAs.
Invest in Your Future
Whether you’re just starting out or an experienced investor, our financial advisors and online tools can help you plan for your financial success. Visit Navy Federal Financial Group to learn more.