A dividend rate is the total dividend expected, on an annual basis, per share of common stock or preferred stock. The rate may be very important both for investors who depend on dividends as an investment strategy and those who are looking to buy stock in a company or portfolio. This rate is determined by multiplying the quarterly dividend rate by four and then adding any extra dividends that may be expected.
To give an example, assume that Widget, Inc., has a dividend declaration in one quarter of $1 US Dollar (USD). That can be projected over four quarters to an annual dividend of $4 USD. There may also be an additional a one-time dividend for the sale of assets of $.25 USD per share. That would equal an annual dividend rate of $4.25 USD per share.
The dividend rate, in many ways, is dependent upon the board of directors for a corporation, who are the ones who declare quarterly dividends. Indeed, when making these decisions, the board of directors are not only affecting their company, but the portfolio of many investors. Banks often use this rate as a marketing tool when promoting their portfolio offerings to the general public.
It should be noted that a dividend rate is usually only a projection. Most banks listing dividend rates for investment options such as portfolios will note that it is a projected rate subject to change. While the projections tend to be very accurate within a few percentage points, it can make a big difference in certain situations.
The dividend rate can be an adjustable rate for preferred stock. This is usually within a certain published range of figures and closely associated with the interest rates during the time period in consideration. This, however, is not the most common form of dividend rate for preferred stock.
The other, more common, option for preferred stock is a fixed rate for dividends. This type of dividend is paid based on the stock's par value, which is the state value of the stock, and is often noted as a percentage of that value. In that way, the actual payment can change, based on the value of the stock.
