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Accounting Allah shmoop the logistics of dividends Okay so there

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are a few knits and gnats that you should know

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about dividends or at least the mechanics for how they

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work from the company's perspective and an accountant's perspective right

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Well dividends or paid quarterly for most companies if they

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are regular E eat lots of bran and fruit There

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are also things called special dividends with your pee paid

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on a one off basis I eat windfall profit distribution

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like Microsoft famously had to celebrate Bill Gates retirement As

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you might guess the logistics of actually sending out a

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million or so checks for a given company with a

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million or so shareholders isn't something that just happens so

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rules are in place that account for the human lag

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time involved You own shares of Apple which lovingly pays

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a dividend of a dollars share four times a year

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four bucks a year for dollar dividend You're on record

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as owning those shares via your broker who likely keeps

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those shares Elektronik Lee for you So everyone knows that

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you own those shares and the dividend payout rules work

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such that if you own them usually a few weeks

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or so after the quarter ends you are legally then

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entitled to that dividend So let's say Apple ins It's

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quarter on March thirty one Its record date for dividends

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might be April twenty eighth Such that anyone who can

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prove that they own those shares as of that date

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is then entitled to a buck a share Is the

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cash paid out that day No way It would be

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too hard to settle a title I legally confirmed that

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the people who say they are of record are in

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fact of record in twenty four hours So there's another

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lag of a few weeks before the cash earned in

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the form of dividend payments Right is paid out That

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date is called the payable date and note that it's

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not called the pay date because well then the company

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might be obligated to be sure the payments are all

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made on that date What if your bank account was

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closed or you moved in They sent subject to the

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wrong place or you fired your broker in Your shares

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are in transit to the new one right So the

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dough is Pay a bull on that day but usually

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aid then or around then so that companies accountants can

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check the you know done box and move on to

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the next quarter Well dividends carry a yield much the

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same way a bond does That is a thousand dollars

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bond might yield six percent That piece paper states that

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the owner of this bond will get thirty bucks twice

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a year or sixty dollars a year Bond yields air

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paid twice a year versus equity dividends which are paid

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four times a year Doesn't matter who owns it That

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owner will get the dough if one person doubles the

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price of the bond and then some sucker advise it

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for two grand While that piece of paper still pays

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thirty dollars twice a year or sixty dollars a year

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on a thousand dollars Getting sixty dollars a year is

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a six percent yield but getting the same sixty dollars

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a year on a bond that costs you two thousand

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dollars implies that you're getting just a yield of only

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three percent Okay so now Mathis idea TTO equity dividends

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Apple declares a ll say a five dollar dividend on

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what's currently a two hundred dollars share stock price Right

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And note that the dividends air declared by the board

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of directors and usually stay in place for a A

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while a year Two three Something like that They're normally

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declared as a dollar amount then divided by the number

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of shares outstanding To get a per share dividend figure

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like Apple might declare a billion dollars a quarter in

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dividends And then they'll figure out what that means On

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a per share basis the stock price changes all the

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time The dividend amount generally stays fixed for awhile and

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boards love to raise dividends little by little over long

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periods of time So what's the yield here than on

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this notional stock price thing on Apple Well it's five

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bucks divided by the two hundred dollars per share equity

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price or two point five percent dividend yield If the

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stock suddenly dropped in half well it's likely that the

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dividend would go unchanged and the yield would be five

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percent AII five bucks divided by the new hundred dollars

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a share price So how to board set dividend amounts

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Well generally they look Att the expected cash earnings the

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next five years and change And then they take a

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percentage of that figure which is meaningful E less than

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one hundred percent That is they want there to be

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some cushion in case the company falls on hard Times

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boards I hate having to cut dividends It undermines the

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trust of Wall Street in them which often relies on

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the stream of dividends Teo you know cover their jets

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Second homes and new wives tastes in jewelry Well Note

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also that these are cash earnings The fact that the

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company maybe depreciating a factory or holding reserves for a

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lawsuit it might lose or have some other non cash

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amortization thing Well it's sort of overlooked because investors get

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paid in cash generally not in notional earnings There are

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times when a company pays a dividend in stock that's

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called a pick or a payment in kind but that's

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a rarity Ignore it for now So if Apple has

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agreed to pay out a dividend of say five billion

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dollars well it's likely that company has something like eight

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billion or much much more than expected earnings per year

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coming And in the case of Apple well that no

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dad and literally billions and billions of dollars like it'll

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kiss more than one hundred here pretty soon in cash

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Well it's just sitting around Do enough another than you

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know updating its Facebook page because that's what a hundred

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billion dollars of cash does all day sitting in the 00:05:20.77 --> [endTime] bank

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