Dividends — Cash in Hand, With Traps

The mechanics

A dividend is a direct cash payment from profits, per share, usually quarterly. Key dates: declaration → ex-dividend (own it before this to get paid; the price drops by roughly the dividend that day) → payment. Dividend yield = annual dividend ÷ price — the income return on your cost.

The yield trap

A 9% yield is usually not a gift — it is the market pricing in a CUT. Yield = dividend ÷ price, and a soaring yield usually means a collapsing price (denominator) on a dividend about to be reduced (numerator). The sustainable-yield questions: payout ratio (dividend ÷ earnings — below ~60% is comfortable for most; 90%+ leaves no cushion) and FCF coverage (is the dividend actually funded by cash?).

Growth beats level

A 2% yield growing 10%/year doubles your income on cost in ~7 years and usually signals management confidence. A static 8% yield signals a business with nothing better to do with capital. Dividend GROWTH streaks (the "Dividend Aristocrats": 25+ years of increases) are a quality screen precisely because maintaining one through recessions requires real pricing power.

Sources

• Dividend YieldInvestopedia
• Payout RatioInvestopedia