Dividends and Dividend Yield, From the Ground Up

A dividend is cash a company pays shareholders out of its profits. Its appeal is creating cash flow independent of price appreciation.

What dividend yield means

Dividend yield = dividend per share ÷ price × 100. At a price of 100,000 with a 3,000 dividend per share, the yield is 3%. When the price falls, yield rises; when it rises, yield falls.

Think after tax

Dividends are taxed at 15.4% (local tax included, Korea). A pre-tax dividend of 1,000,000 nets about 846,000. Get in the habit of reading “what you receive” on an after-tax basis.

Mind the ex-dividend drop

After the record date, the right to the dividend disappears and the price tends to adjust down by roughly the dividend amount (the ex-dividend drop). Buying short-term just to grab a dividend may pay off less than you expect.