More investors every day are discovering the Robinhood stock brokerage and mobile app, which provides a no-fee, no-commission brokerage account for low volume traders. Beginner investors can benefit from Robinhood’s services by practicing with small amounts of money without suffering the drawdown of excessive trading costs.
One of the attractive features of Robinhood is the ability to invest in dividend stocks for free. Cost-conscious investors can purchase Robinhood stocks that pay dividends to begin to build a dividend-reinvestment or dividend-income strategy with no fees or commissions to the broker.
What are Dividends?
Some publicly-traded companies choose to pay out a portion of their earnings each year as dividends, which are direct cash payments to stockholders. Different companies pay dividends at different times during the year, and at different frequencies. Some pay one dividend per year, for example, while others pay quarterly or bi-annually.
Dividend-paying companies remit payments directly to stock brokerages, whose customers are investors holding the stock. For any brokerage accounts holding a dividend stock on the day the dividend payout is declared, the company will send the expected payout to the brokerage shortly afterward, and the brokerage is responsible for apportioning the payments among its clients’ accounts.
How do Dividends Work on Robinhood?
New users may wonder “How does Robinhood pay dividends?”, and the process is quite simple. Robinhood uses it’s Messages feature to send a note indicating that a dividend has been paid. The note informs the user of the dividend declaration date, the number of shares owned on that date, and the total payment received.
For any fractional shares Robinhood calculates the percentage of a full dividend that an investor will receive.
When logging in, users will see a notification that they have a new message, which will inform them that a dividend has been paid. After receiving a dividend, users can check their Account page to view their History and Buying Power, which should both reflect a new balance including the dividend. From there, users can choose to hold the payment in their account, reinvest it immediately, or withdraw it.
According to Robinhood’s Help Center, it is also possible to filter the account history page to only view dividend payouts. To do this:
- Open the History page
- Click or tap the Filter button
- Select Dividends from the filter list
The History page should then be filtered to display only previous and pending dividend payouts. This feature can be used to update historical trade data outside of the app, or to get an idea of when to expect any upcoming dividend payouts.
Most stocks do not pay dividends monthly, but it can be possible to build a stream of Robinhood monthly dividends by holding a variety of dividend stocks that pay at different intervals. Robinhood’s wide range of available stocks from multiple exchanges also allows investors to build a dividend-stock portfolio spanning multiple industries and company profiles, which can help to build a well-diversified dividend investing strategy.
Dividend Yield
Robinhood displays the dividend yield of any stock on both the web and mobile user interface. In the About section for any stock’s page, near the company description, the Dividend Yield will be displayed alongside other useful statistics, such as Average Volume.
In the mobile app, this statistic is labeled “Div/Yield”.
Searching online for “div/yield Robinhood” can help to begin a search for dividend-paying stocks, and there are many stock screeners available online to help even further. Using Robinhood as a starting point to find dividend stocks is not the most efficient route since the app does not include stock screeners or advanced search capabilities.
Robinhood handles the calculation of annual dividend yield automatically, but investors can also use a formula to calculate the dividend yield of any stock on their own. The Motley Fool defines the formula for dividend yield as (annual dividend / current share price x 100).
Buying dividend stocks on Robinhood
Once a user has identified a dividend stock to purchase, the process is the same as any other security offered by the brokerage. On any stock’s information page, click Trade > Buy, then select one of the available order types. Depending on market conditions and the time of day, Robinhood will execute the order as soon as possible.
After buying a dividend stock, it is up to the user to track which stocks in the portfolio will pay dividends, and what each stock’s payout schedule will be.