Site:www.dividendusa.com

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What are Dividends?

Dividends are payments made by a company to its shareholders, typically from the company's profits. They can be paid in cash or in additional shares of stock345.

Types of Dividends

• Cash Dividends: The most common type, paid directly into the shareholder's brokerage account.
• Stock Dividends: Paid in additional shares of stock.
• Dividend Reinvestment Programs (DRIPs): Allow investors to reinvest dividends back into the company's stock.
• Special Dividends: One-time payments to distribute accumulated profits.
• Preferred Dividends: Paid to owners of preferred stock, which functions more like a bond.
• Dividend Funds: Mutual funds or ETFs that hold multiple dividend-paying stocks3.

Taxation of Dividends

Dividends are taxable. Qualified dividends are taxed at capital gains rates (0%, 15%, or 20%), while non-qualified dividends are taxed as ordinary income. The IRS Form 1099-DIV distinguishes between qualified and non-qualified dividends45.

How Dividends Work

To receive a dividend, an investor must own the stock by the ex-dividend date. The company announces the dividend amount, payment date, and ex-dividend date. Dividends are paid out of the company's earnings and profits35.

For more detailed information, you can refer to the sources provided from NerdWallet, ACap Advisors & Accountants, and the IRS.