Complete Guide to Dividends: Calculation, Ex-Dividend, and Investment Strategies

Why Dividends Are Fundamental in Your Stock Portfolio

If you invest in stocks, dividends are not a secondary issue: they are one of the main reasons why many established companies attract capital. Shareholders receive a portion of the company’s profits, making dividends a key mechanism for generating passive income. But understanding how they work goes beyond knowing that “you will receive money”: it involves knowing when, how much, and under what conditions you are entitled to that payment.

Dividends vs. Coupons: They are not the same even if they look similar

Many investors confuse these two concepts, but they are fundamentally different. Dividends belong to the equity (stocks) world, while coupons are part of fixed income (bonds).

When you are a shareholder, you receive dividends as an owner. There is no predefined maturity date: the board of directors decides the amount and frequency each period. Conversely, if you buy a bond, you are a creditor of the company, and it pays you periodic coupons until the bond matures and you recover your initial capital.

A typical 5-year bond works like this: you invest in year 0, receive annual coupons during years 1 to 4, and in year 5, you get the last coupon plus the return of your investment.

The key difference: dividends have an indefinite duration, while coupons have a maturity date (except for perpetual bonds).

The critical concept: what is the ex-dividend date

Here comes one of the most important but misunderstood aspects: the ex-dividend date. This is the cutoff line that determines who has the right to receive the dividend and who does not.

If you hold shares until (including) the day before the ex-dividend date, you are entitled to the payment, even if you sell afterward. If you buy on or after the ex-dividend date, you will not receive that period’s dividend.

Let’s see a practical example:

Case: Banco Santander announces a dividend of €0.8 per share payable on April 8, with an ex-dividend date of April 6.

• Ramiro owns 300 shares and sells them to Pascual on April 6 (ex-dividend date)
• On April 8, Ramiro receives the dividend for his 300 shares, even though he is no longer the owner
• Pascual is now the shareholder but does not receive the dividend because he bought on the ex-dividend date

Alongside this date, there are two other important ones:

• Record date: when it is officially determined who has the right to receive the dividend
• Payment date: when the money is actually paid

In foreign markets, you will see terms like “ex date,” “last trading date,” and “payment date” to refer to these concepts.

Growth vs. Value: the role of dividends in classification

Dividends reveal a fundamental characteristic of stocks: whether they are growth or value.

Growth stocks (tech, biotech companies) reinvest most of their earnings to expand the business, offering low or no dividends. Their appeal lies in price appreciation.

Value stocks (utilities, energy, basic consumption) are well-established businesses with stable cash flows. They allocate significant percentages of profits to dividend payments, providing regular income to investors.

Types of dividends that exist

There is no single model. Companies can distribute dividends in various ways:

1. Ordinary or interim dividend: Paid based on profit forecasts before the end of the fiscal year.

2. Final dividend: Adjusted to the final profits already accounted for and recorded.

3. Extraordinary dividend: Not from normal business operations, but from special events like asset sales or significant divestments.

4. Flexible or scrip dividend: The shareholder chooses: cash, additional shares, or a mixed combination.

5. Fixed dividend: The classic model: payout in euros or dollars approved by the Board based on results.

How to calculate the dividend per share (DPA)

The calculation is simpler than it seems. You only need two data points:

Dividend per Share Formula (DPA):

DPA = (Net Profit × % Pay Out) / Total Shares Outstanding

Where Pay Out is the percentage of profits the company allocates to dividends.

Once you have the DPA, you can calculate the Dividend Yield (RD):

RD (%) = (DPA / Current Share Price) × 100

Practical example:

Banco Dinero reports profits of 10 million euros with an 80% pay out, allocating 8 million to dividends.

• Shares outstanding: 340 million
• DPA = 8,000,000 / 340,000,000 = 0.0235 €
• Current price: 1.50 €
• RD = (0.0235 / 1.50) × 100 = 1.56%

Essential terminology in dividends

Mastering these terms will help you better analyze opportunities:

Dividend Yield: The return you will receive in the form of dividends for holding the shares.

Earnings Per Share (BPA) / EPS (EPS): The portion of net profit attributable to each share. Calculated by dividing total profit by issued shares.

Pay Out: The percentage of earnings allocated to dividends. Young growth companies have low pay out (0-30%), while established value companies have high pay out (70-100%).

Price Earnings Ratio (PER): Indicates how many times the annual earnings of a stock are equivalent to its current price. Formula: PER = Stock Price / BPA

The Dividend Aristocrats: the elite of distribution

Within the market, there is a select club of companies that have maintained a consistent dividend policy for at least 25 years, increasing dividends each year. They are called Dividend Aristocrats.

Currently, there are 65 companies in this category, all from the S&P 500. Names like Coca-Cola and P&G have been on the list for decades, while Church & Dwight and Brown & Brown are the most recent additions.

Being part of this club signals: financial stability, confidence in the business, and genuine commitment to shareholders.

Dividends and CFDs: what happens when you trade derivatives?

In most trading platforms, you do not buy shares directly but CFDs (Contracts for Difference). CFDs are derivative products that replicate the behavior of the underlying asset.

The question is: do CFDs receive dividends? The answer is yes. Stock CFDs that pay dividends will replicate that distribution. However, you will not have voting rights in shareholder meetings (something that also does not affect most retail investors).

The advantages of CFDs for many: leverage and the ability to take short positions. The disadvantage: they are derivatives, not actual ownership.

Do all companies pay dividends?

Generally yes, because it is a key attraction for investors. But there are exceptions:

• Growth companies may choose to suspend dividends temporarily to reinvest everything into expansion
• If the company reports losses during the period, it may cancel the dividend
• These events are often severely penalized in the stock market

Dividend suspension is a signal that the market punishes harshly, reflected in significant drops in the stock price.

Portfolio strategy based on dividends

Building a dividend portfolio requires discipline. It is not “buy any stock that pays dividends,” but applying clear criteria:

1️⃣ Consistent history: Look for companies that have paid dividends steadily and growing for years.

2️⃣ Defensive sectors: Focus on utilities, basic consumption, and energy. They are predictable business models with stable cash flows.

3️⃣ Relative valuation: Prefer companies with a low PER relative to their sector, not compared to other sectors (each sector has its dynamics).

4️⃣ Dividend reinvestment: Take advantage of compound interest by reinvesting dividends into more shares of the same company.

5️⃣ Low leverage: Highly leveraged companies may lose payment capacity if interest rates rise.

6️⃣ Active monitoring: Even if buy & hold, keep an eye on financial statements. Disappointing surprises can ruin your strategy.

The impact of dividends on stock price

Dividends directly influence the stock’s behavior. Good news about dividends increases the stock’s value, while suspension penalizes it.

Even on the payment day itself, a phenomenon is observed: typically, the price drops proportionally to the dividend paid. That is, if you pay €1 dividend per share and the stock was at €50, it is likely to fall to €49 that day (although this can vary depending on market conditions).

Conclusion: dividends as a pillar of your investment strategy

Whether you seek regular passive income or simply diversify your returns, dividends are an essential concept in the universe of stocks. Understanding what the ex-dividend date is, how to calculate the DPA, and what types of dividends exist positions you as an informed investor capable of identifying real opportunities in the market.

Dividends are not an optional topic in finance: they are a fundamental pillar that every trader and investor must master.