Dividend Investing for Beginners: Key Dates, Tax Rules, and DRIPs
- Gin
- Nov 21, 2025
- 8 min read
In my previous post, we talked about capital gains—the money you make when you sell stocks for more than you paid. But that’s only one way stocks can make you money.
In this post, we’ll take a look at the second way of making money with stocks: dividends. We’ll break down key dates to know about dividends and how to minimize tax liability. And we’ll also answer the big question every dividend investor wants to know—Is it possible to live off of dividends only?
WHAT ARE DIVIDENDS?
When a company is profitable, they have several options for how to use that money, including:
Reinvesting the money into the business
Paying down debt
Buying back shares of company stock
Sharing that money with shareholders
When a company is just starting out, its main focus is to grow the business. Hence, profits tend to be reinvested back into the business. Companies that issue dividends tend to be mature companies whose growth has slowed.
As we covered in the previous post, when you own stock in a company, you are in fact a part-owner of the company. And as a part-owner, you are entitled to a portion of the company’s profits. Unfortunately, walking into their headquarters and yelling, “Show me the money!” like Jerry Maguire will only get you escorted out by security.
Rather, when a company chooses to share profits with shareholders, they do so in the form of dividends.
How much you receive depends on the number of shares you own. The company’s board of directors decides how much will be paid out per share and also the timing.
Most companies pay dividends on a quarterly basis, but some pay monthly. For example, of the 500 largest American companies, about 80 percent pay dividends quarterly and fewer than 10 percent pay monthly.
SPECIAL DIVIDENDS
In addition to the recurring dividends, some companies may also pay special dividends. These are one-time, non-recurring dividends when a company has excess cash from a particularly strong period.
Costco, for example, announced a $15 per share special dividend back in December 2023. This was in addition to their recurring quarterly dividend of $1.02 per share for that fiscal year.
Special dividends are exciting to receive. You just can’t predict them. It’s like when Grandpa gave you spending money out of the blue.
Ordinary dividends, on the other hand, are more predictable. Any time a company announces a dividend, its board of directors decides on a set of dates.
KEY DATES EVERY DIVIDEND INVESTOR SHOULD KNOW
Whenever a company pays a dividend, four dates come into play. Two are straightforward, and the other two are responsible for about 90% of investor confusion.
The declaration date is simply when the dividend was officially announced by the board of directors and voted on. The payment date is when shareholders receive their dividend payments.
The other two dates—the ex-dividend date and the record date—land on the same day due to recent rule changes on the stock exchanges. For that reason, they can be confused with each other, but they represent two different things.
The ex-dividend date is the most important date to be aware of. To be eligible to receive the upcoming dividend, you must own shares before the ex-dividend date. If you buy shares on or after the ex-dividend date, you will not receive the dividend.
Example: If Apple has a November 10, 2025, ex-dividend date for its upcoming dividend, you must buy shares no later than November 9, 2025, to receive the dividend.
Think of the ex-dividend date as the day the store is closed. If you want to buy something, you need to come earlier.
The record date is when a company compiles its list of every shareholder who will receive a dividend. As long as you own shares before the ex-dividend date—which happens to be the same as the record date—you will be included on this list.
QUICK RECAP
Declaration Date: The company announces its dividend
Ex-Dividend Date: You must buy stocks before this date to be eligible for the dividend
Record Date: The company compiles a list of everyone who will receive the dividend
Payment Date: Dividends are sent to everyone on the list
Now that you know how dividends work, let’s see how to find out if the dividend return you’re getting for your investment is one to get excited about or just meh.
CALCULATING DIVIDEND YIELDS
When choosing a stock for its dividends, take a look at the dividend yield. It’s always shown as a percentage. It gives you an idea of how much you would receive in dividends relative to how much the stock costs.
In the following screenshot, we see that Apple’s stock was selling for $267.59 on November 17, 2025. It also has a dividend of $1.04. If you divide the dividend (1.04) by the stock price (267.59), you get 0.0038 or 0.38%, which is the dividend yield.
This means for every $100 the stock costs, you’d receive 38 cents in dividends. Not exactly Dom Pérignon money. More like La Croix sparkling water money. Hey, at least it’s not Arrowhead water.
Since the dividend yield is directly tied to the price of the stock, it fluctuates as the stock’s price goes up and down. It’s a constantly changing number.
The higher the stock price, the lower the dividend yield and vice versa. A higher dividend yield means you’re getting a better return on your investment.
This brings us to the question every new dividend investor wants to know, and we’ll use the dividend yield to answer it.
CAN YOU LIVE SOLELY OFF OF DIVIDENDS?
Articles and videos about receiving tens of thousands of dollars through dividend investing are all over the internet. It’s alluring to dream of relaxing on the beach as thousands of dollars flow into your pockets. But is it actually possible to receive enough dividends to live solely off of?
That’s the question everyone wants to know. And depending on who you ask on YouTube, the answer ranges from “absolutely” to “only if your portfolio has its own zip code.”
So let’s see if that dream is realistic. We’ll calculate how much stock you’d need to purchase to receive $50,000 a year. To do that, all we need is a dividend yield.
It is possible to find companies with dividend yields in the teens, but most yields are in the single digits. In recent years, the average has dropped because stock prices have been skyrocketing. Currently, the long-term average dividend yield of S&P 500 companies sits around 2%-2.5%.
For this example, let’s look at the results for a 2.5% yield. Since we want to find out how much stock we’d need to buy to receive $50,000 in dividends, we just need to divide $50,000 by the dividend yield.
$50,000 divided by 2.5% equals $2 million.
In other words, at a 2.5% dividend yield, you’d need to buy $2 million in stocks to receive $50,000 per year in dividends. At an above-average 5% dividend yield, you’d still need to buy $1 million in stocks.
So, is it possible to live just off of dividends? Sure, but you’ll need a heavyweight portfolio to pack a punch. Retiring as a beach bum might not happen, but you might be able to visit the beach a couple of times a year.
This isn’t to say that investing for dividends is pointless. As mentioned earlier, dividends tend to be paid by companies that are mature and profitable. So, in theory at least, you would be buying stocks in a stable company. And the stock price could still rise, resulting in capital gains, although maybe not as much as a rapidly growing company.
In my personal portfolio, more than half of my stocks pay dividends. But it didn’t start out that way. At the time I bought the stocks, the companies were rapidly growing and paid no dividends. Over the years, their growth slowed down, and many started paying dividends.
Personally, although I don’t dislike dividend-paying stocks, I’m not a huge fan either. The main reason for this is that, unlike capital gains, which are only taxed when realized, dividends are always taxable immediately.
Even if the dividends are reinvested, taxes are still owed. The only way to defer or avoid taxes on dividends is to invest through a tax-advantaged account such as a 401(k) or Roth IRA.
That said, there is a way to reduce taxes on dividends even without a tax-advantaged account.
THE TAX ADVANTAGE: QUALIFIED VS. ORDINARY DIVIDENDS
In my previous post, you learned that capital gains are taxed at lower rates if investors hold their stocks for a long period. The same general rule applies to dividends as well.
Depending on how long you hold onto your stocks, any dividends would be considered either ordinary dividends or qualified dividends. The two types of dividends are taxed at different rates.
Ordinary dividends are treated as regular income. They are taxed at the same federal tax rate as your wages.
Example: If you made $60,000 from your job and another $2,000 in ordinary dividends in 2025, as a single filer, that would put you in the 22% tax bracket. This means you’d owe $440 in taxes on your dividends.
Qualified dividends, on the other hand, are taxed at the same rates as long-term capital gains. There are several requirements for a dividend to be considered qualified.
The most important requirement is the holding period of the stock. The stock must be held for more than 60 days within the 121-day period beginning 60 days before the ex-dividend date.
Confused? Let’s break it down.
Example: Apple’s ex-dividend date is November 10, 2025. Sixty days before and after this day would be September 11, 2025, and January 9, 2026. You must hold the stock for at least 60 days between these two dates for dividends to be considered qualified.
It sounds complicated, but think of it as the IRS’s way of saying, “If you want the lower tax rate, you need to stick around for a little while.”
The takeaway is simple: long-term holders are rewarded with the same rates as long-term capital gains.
Example: If you made $60,000 from your job and another $2,000 in qualified dividends in 2025, as a single filer, your dividends would be taxed at the 15% rate for $300.
WHAT IS A DIVIDEND REINVESTMENT PLAN (DRIP)?
Since you owe taxes on any dividends not in a tax-advantaged account, you may be tempted to withdraw that money and spend it. I’m not going to judge you if you do, but here’s another option—reinvest it.
A Dividend Reinvestment Plan (aka DRIP) is a popular dividend investing strategy to automatically buy additional shares of stock with the dividends. For example, if you opt to reinvest dividends from Apple, additional Apple shares would be purchased as soon as dividends are received.
This powerful strategy harnesses the power of compounding. Each additional share produces more dividends, which in turn can be used to buy more shares. It’s a powerful snowball effect. And the earlier you start, the bigger that snowball gets.
If you want your dividends to quietly hustle in the background, let a DRIP do the heavy lifting for you. This can be easily set up in your account with a click of a button.
RECAP
Dividends are a share of a company’s profits paid out to shareholders.
Stocks must be bought before the ex-dividend date to be eligible to receive dividends.
Dividend yields show how much it “costs” to receive the dividend.
Qualified dividends get the same low tax rates as capital gains—sometimes even 0%.
Automatically reinvesting dividends via a DRIP can harness compounding to grow your investments quickly.
Dividends won’t make you rich overnight, but they can absolutely help you build wealth over time. They’re the steady supporting character in your portfolio: reliable, predictable, and quietly compounding behind the scenes.
Whether you reinvest them, spend them, or just admire them as they roll in, understanding how dividends work—and how to keep more after taxes—puts you miles ahead on the road to financial independence.
If you learned something new today, drop a comment below.
See you at the finish line.
Disclaimer: I may hold shares of some of the companies mentioned. I’m not a licensed financial professional. This blog shares my personal experiences and opinions around money, investing, and early retirement. It’s for informational and educational purposes only—not financial, legal, or tax advice. Always do your own research or consult with a qualified professional before making any financial decisions.
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