Dividends & Buybacks

Companies return cash to shareholders either through dividends (regular cash payments) or buybacks (repurchasing their own shares, which reduces supply and can boost EPS). Both signal financial strength.

Quick quiz and answers

What is dividend yield?

Answer: Annual dividend ÷ stock price. Dividend yield = annual dividend per share ÷ stock price. It shows the income return as a percentage.

A share buyback typically:

Answer: Reduces shares outstanding. Buybacks reduce the share count, which increases EPS (earnings per share) and often supports the stock price.

What does "ex-dividend date" mean?

Answer: You must own shares before this date to receive the dividend. Buy before the ex-dividend date to qualify for the upcoming dividend payment.

Which company type is MOST likely to pay high dividends?

Answer: Mature, stable utility or bank. Mature companies with steady cash flow (utilities, banks, REITs) typically return the most to shareholders via dividends.

Practice this with $10,000 in virtual cash in Tradecraft, free paper trading with real market data.

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