What is an Ordinary Dividend?
How Does an Ordinary Dividend Work?
For example, let’s assume that John Doe holds 10,000 shares of Company XYZ stock, which pays $0.20 per year in dividends. In total, John Doe receives 10,000 x $0.20 = $2,000 per year in dividends from Company XYZ. Because Company XYZ does not pay qualified dividends, John Doe must pay tax (say, 35%) rather than (say, 15%) on the dividends.
In order to be a , the must come from an American company (or a qualifying foreign company), must not be listed as an unqualified dividend with the IRS, and must meet a required holding period. In general, the holding period is at least 60 days for common stock, 90 days for preferred stock, and 60 days for a dividend-paying mutual fund.