If you’re like a lot of investors, you’d prefer to invest in stocks that pay regular dividends as opposed to those that don’t.

Investing in dividend paying stocks is a great way to generate a stream of passive income that can last you a lifetime. Who wouldn’t want that?

 

 

Do Stocks Always Pay Dividends

Not only this, but dividend paying stocks often have less market volatility which makes them extremely attractive to some investors.

With that said, new investors looking to invest in shares of a company often wonder if all stocks pay dividends.

So let’s clear the air.

Do Stocks Always Pay Dividends?

Stocks do not always pay dividends to their owners as companies have no legal obligation to do so. For example, large companies like Amazon and Google don’t pay dividends because they choose to reinvest their profits back into the company for future growth.

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How to Tell If a Company Pays a Dividend?

As mentioned above, not all stocks pay dividends. Companies such as Uber, Shopify and Facebook don’t pay regular dividends to their shareholders. These stocks are often referred to as “Growth Stocks”

Do Stocks Always Pay Dividends

Income stocks on the other hand, such as Microsoft and AT&T, usually pay regular dividends to their shareholders.

Do Stocks Always Pay Dividends

With this said, you won’t always know if a company’s stock is considered growth or income, so you may be unclear on if they pay a dividend or not.

In order to know for sure, go to Yahoo Finance and lookup the stock you are wondering about in the search bar.

Yahoo Stock Search Bar

YAHOO STOCK SEARCH BAR

Then, scroll down and look to see if there’s any information next to the dividend columns.

If there is a “ex-dividend date” and numbers next to  “forward dividend and yield” then that stock pays a dividend.

If not, and you see “N/A” next to both chart items, then that stock doesn’t pay a dividend.

For example, look at AT&T’s stock chart here below

AT&T Inc. (T) Stock Chart

AT&T INC. (T) STOCK CHART

As you can see, AT&T’s dividend yield is roughly 7% and their ex dividend date was July 9, 2020.

On the contrary, Shopify is considered a growth stock that doesn’t pay dividends.

As you can see from their stock chart below, “N/A” is next to both dividend columns so you know they don’t pay dividends.

Shopify Inc. (SHOP) Stock Chart

SHOPIFY INC. (SHOP) STOCK CHART

Simple Way to Check If A Company Pays a Dividend

Another easy way to determine if a company pays a dividend is just to google:

“Does stock (xyz) pay a dividend?”

If the company is large enough or at least recognizable, you should get a response right on the search engine results page, as shown below.

Do Stocks Always Pay Dividends?

Why Wouldn’t a Company Pay a Dividend?

While a lot of investors would prefer to receive a regular dividend from the stocks they invest in, a lot of big companies still neglect to issue a share of their profits back to shareholders.

Typically, a company that chooses not to pay dividends to their shareholders do so in order to grow their company by reinvesting their profits back into business.

By doing so, a company can actually increase the value of their stock and make more money for their shareholders than what a dividend would earn them.

I know what you’re thinking, I have heard that line 1000 times, companies don’t pay dividends because they want to “reinvest their profits”.

But what exactly does this mean? What exactly are these companies doing with their profits?

  • Funding innovation – Creating better products and services

  • Buying up competitors and other companies

  • Paying off debt

  • Hiring more employees

  • Setting up new offices

  • Marketing

  • Building up a Cash Reserve (Check out Apple’s Cash Stash)

When a company decides to reinvest their profits to fund these activities, they can often see an increase in their stock price.

In contrast, as a broad rule, a stock price will usually fall by the amount of the dividend on the ex-dividend date.

So, for those companies in a growth phase, not only do dividends reduce the amount of capital they have on hand for future growth, but they also reduce their current share price which reduces their overall market capitalization – two things growing companies don’t want.

Quick Note #2 – Some investors, Warren Buffett included, don’t like when companies pay dividends as they believe they could earn more by selling off a portion of a higher share price than they could from earning dividends. Plus, taxes paid on capital gains can often be more favourable than dividends.

Non-Dividend Paying Stocks

While most large cap stocks pay regular dividends to their shareholders, some choose not to.

Below is a list of companies you may be surprised don’t payout dividends:

Do Stocks Always Pay Dividends?

You might be thinking, why wouldn’t these stocks pay dividends? Each one of these companies generate billions of dollars in revenue every year, surely they can afford a little kickback to their loyal shareholders while fostering future growth.

While this is a valid point, advocates would argue the reason these companies are in fact industry leaders is because they choose to not to pay dividends and instead reinvest for future growth.

Who’s to say what the right approach is.

Warren Buffett, the greatest investor ever, doesn’t like when companies pay dividends while Kevin O’Leary, a well known Canadian investor, flat out refuses to invest in any companies that don’t pay dividends.

Why Do Companies (Stocks) Pay Dividends?

Okay, so now we know some companies decide not to pay dividends on their issued stock, which begs the question, why would a company payout money to shareholders if they didn’t have too?

Great question.

As mentioned above, a company’s stock price will typically drop by their dividend amount on the ex-dividend date, which isn’t ideal, but this is really just a short term dip in the stock price and it shouldn’t have any negative effect on how the company’s overall health is reflected.

With that said, companies that consistently pay out dividends to their shareholders are often regarded as some of the most healthy companies in the world.

Think about it, a company that is able to consistently pay their shareholders a little thank you cheque every month or every quarter has to be doing something right – and the market can recognize that.

Dividends portray a sense of stability and financial strength in a company which makes a stock very attractive and in return creates a demand for that stock which increases its price.

Furthermore, paying dividends gives investors a sense of confidence that board members are optimistic about the future of the company.

Remember, dividends are taken from a company’s profits.

So if a company is willing to give away a large portion of their earnings back to shareholders, they must have confidence that profitable days still lay ahead.

Why else would a company pay dividends? What about for the simple reason that shareholders are owners of the company and deserve some return for making an upfront investment!

Remember, owning shares of a company means you are actually a part owner of that company, so if the company does well financially, wouldn’t it make sense for you to get a regular return?

Think about it this way, imagine if you helped your friend with a new business and invested $10,000 into his company that went on to make millions of dollars.

You might be okay with profits being reinvested early on as the business scales up, but once the business has clearly “made it” and is financially stable, wouldn’t you feel like you deserved a percentage of the profits based on your investment?

List of Dividend Paying Stocks

Now that we know that companies don’t always pay dividends, let’s look at a few well known companies that do in fact return a portion of their profits to shareholders.

  • Apple (AAPL) – $.82 (.73%)

  • Microsoft (MFST) – $2.04 (1.01%)

  • Nike (NKE) – $.98 (.87%)

  • AT&T (T) – $2.08 (7.05%)

  • ExxonMobil (XOM) – $3.48 (9.11%)

As of September 9th 2020

AS OF SEPTEMBER 9TH 2020

% = Dividend Yield  (Stock Price/Dividend Payout)

$ = The Cash Value of the Dividend

The figures you see above are considered Forward Dividend Yields which are basically just an estimation of what a company will payout to investors over what is generally a 12 month period.

Conclusion

Here’s the bottom line, stocks do not always pay out dividends to their owners.

Not only are companies not legally obligated to do so, but in some cases, it may make more sense for a company not to distribute their earnings to shareholders as the company is in a stage of rapid growth.

Additionally, stocks that don’t pay dividends can sometimes be more lucrative to shareholders than those that do.

Keeping profits in house means the company has more capital to grow their business. In return, this expansion can drive up a company’s stock price (Hello Tesla 2020) which a shareholder can then sell for a nice capital gain.

I personally love dividend stocks as I love the monthly and quarterly cheques I receive from these companies for doing nothing!

But again, I invest in low risk stocks such as big banks and blue chip companies like Microsoft and Apple.

While I still invest in some growth stocks that don’t pay me dividends like Facebook and Shopify, I do so for their potential growth over the next 5-10 years and not for a regular cash flow.

How you invest and what you invest in is not my concern, and I am certainly not an investment expert, speak with professionals and make informed decisions before making stock purchases, but just remember – not every stock you invest in will pay you dividends.