What are dividend stocks?

Dividend stocks reward their shareholders with regular payments out of company earnings. These payouts may come quarterly, semi-annually or annually. The board of directors is responsible for setting the company’s dividend policy and for determining the size of the dividend payout based on the firm’s long-term revenue outlook.

The more shares an investor holds in a particular dividend stock, the higher the payment you receive will be. For example, if you own 100 shares of a stock paying an annual cash dividend of $3, you would receive $300 in annual dividends from that company. If that company paid a quarterly dividend, you would receive $75 in dividends every three months for a total of $300 over the course of the year.

Cash dividend payments are typically sent to shareholders through the investor’s brokerage account. However, companies may also pay out dividends by issuing stock (referred to as a stock dividend), or by offering discounts on stock purchases through dividend reinvestment programs (DRIPs).

Other dividend types include special dividends, which are one-time payments to holders of common stock that are paid out from a company’s accumulated profits; there are also preferred dividends, which are paid to holders of preferred stock on a quarterly basis at a fixed rate.

When declaring a dividend, an ex-dividend date is set based on stock exchange rules. This date determines whether or not shareholders in the company are eligible for the dividend payout.

Those shareholders that purchased stock before the ex-dividend date are entitled to the dividend. Conversely, if you purchased stock on or after the ex-dividend date, the seller will receive the payout and you will have to wait until the next declared dividend to reap the rewards of holding a dividend stock.

To determine an ex-dividend date, check a company’s dividend announcement, where it should note that the dividend will be paid to stockholders of record up to a certain date.

Pros and cons of investing in dividend stocks

There are several advantages to dividend stocks, especially for those who prefer a long-term approach to investing, including acting as a source of income and providing stability.

Companies that pay stock dividends and DRIPs offer investors the opportunity to grow their holdings. Cash dividend stocks, on the other hand, provide an additional source of income that can be used for things such as your mortgage, vacations, healthcare or a child’s university tuition.

Another attractive feature of dividend stocks is the security they offer. Companies that are able to pay dividends are often well-managed firms with the ability to generate consistent revenues, even in the face of a volatile market.

As for taxation on dividend stocks, for investors in the US and Canada, the tax rate on qualified or eligible dividends will typically be lower than other forms of investment income. The dividend tax rate will depend on many factors such as your income, where you live, where the company is based and what kind of account you hold the stock in.

Both the US and Canada have lowered taxes for dividends on American and Canadian companies, respectively, compared to foreign companies. The amount of tax credit towards dividend income also vary depending on the state or province in which you live.

In the US, you will be taxed less if your dividends are held in an IRA or a 401(k) plan, but if you receive your dividend payments through a brokerage account, that tax rate will be higher. In Canada, you will not need to pay taxes if your dividend shares are held in a TFSA, and you will only pay taxes on dividends in an RRSP when the funds are withdrawn from the account.

There are downsides to dividend stocks as well. Firstly, when companies are doling out a portion of the profits to shareholders, less capital is being put back into growing the business. This means that dividend stocks have less potential to gain in value. For investors big on growth stocks, these might not be an ideal portfolio addition. There is also the risk that during a downturn in the markets, a company may be forced to pare down its dividend payments or suspend them entirely.

There are a number of important metrics typically available through online financial and brokerage websites that investors can use to evaluate whether or not a particular dividend stock is right for their portfolio. The three most useful metrics are the debt-to-equity ratio, the dividend yield and the dividend payout ratio.

What is debt-to-equity ratio?

The debt-to-equity ratio calculates the amount of total debt (including financial liabilities) that a company holds compared to total shareholder equity. Basically, it’s a measure of the extent to which a company can cover its debt and is used to evaluate a company’s financial health.

In the context of dividend stocks, a high debt-to-equity ratio can threaten a company’s ability to maintain its dividend. Avoiding companies with a debt-to-equity ratio higher than two is a good rule of thumb, and ratios below one are typically considered good.

However, it is important to keep in mind that normal ranges for debt-to-equity ratios do depend on the sector. For example, according to January 2025 data from FullRatio, US companies in most of the mining and metals industries had some of the lowest average debt-to-equity ratios of all industries at around 0.2 or below. However, copper, uranium and oil and gas companies had higher debt-to-equity ratios, with averages falling in a range of 0.46 to 0.98 depending on the industry.

What is dividend yield?

While the debt-to-equity ratio can be used to evaluate any stock, the dividend yield is a metric specific to evaluating dividend stocks. The dividend yield is a ratio in percentage form that represents the income paid out to shareholders compared to a company’s share price. This ratio is calculated by dividing the annual dividend payment per share by the current share price, meaning it changes with share price fluctuations.

Investors can use dividend yields to compare the investment value of a dividend stock with its peers in a given sector. “Dividend yield can help investors evaluate the potential profit for every dollar they invest, and judge the risks of investing in a particular company,” Business Insider states.

For example, let’s say you are choosing between three dividend stocks in a sector with an average dividend yield of 5 percent. Company A pays an annual dividend of $3 per share and is currently trading at $50, meaning it has a dividend yield of 6 percent. Company B also pays an annual dividend of $3 per share, but its current share price is $100, which is a 3 percent dividend yield. Company C pays a dividend of $4 per share and is trading at $40, giving it a dividend yield of 10 percent.

Taking into account the average dividend yield for the sector, Company A is the best choice of the three. While Company C has a much higher yield, it’s out of line with the sector average, which might be a signal that the company poses a greater investment risk.

“While a high dividend yield may be appealing, it doesn’t necessarily mean a stock is a smart investment,” Investopedia states. “Overly high dividend yields may indicate that a company is struggling.”

Conversely, a dividend yield of below 2 percent may be an indication that the company is more focused on growth and investing back into the business rather than sharing profits with stockholders.

Most financial advisors say investors should look for companies with dividend yields of between 2 and 6 percent.

Dividend yields move in the opposite direction of stock prices. In the example above, Company C was previously trading at $80 per share before a massive recall of its product was forecast to cost it millions of dollars in lost revenue, causing a massive selloff. Therefore, its ultra-high dividend yield is a negative signal to investors.

The example of Company C is another reason why investors would be wise not to pick stocks based on one metric alone.

What is dividend payout ratio?

Let’s look at another important tool for evaluating dividend stocks: the dividend payout ratio. The dividend payout ratio helps investors measure the risk associated with a particular company’s dividend payment. The ratio is calculated by dividing total dividends by net income. It tells you how much of the company’s net income goes toward paying dividends.

If a company’s dividend payout ratio shows it is using all of its income to pay dividends, then its dividend program is likely not sustainable. The closer the ratio is to 100 percent, the more likely a company’s dividend program will be cut once the market cycles into a downturn. Nerd Wallet advises investors to rule out companies with dividend payout ratios of 80 percent or above, while Investopedia reports that companies with dividend payout ratios of less than 50 percent are “considered stable” and have “the potential for sustainable long-term earnings growth.”

What are dividend aristocrats?

Investors looking for the most stable, reliable dividend stocks turn to dividend aristocrats, which are are S&P 500 (INDEXSP:.INX) companies known for consistently increasing their dividends for at least 25 years. Dividend aristocrats come out of a broad range of industries, such as energy, pharmaceuticals, consumer goods, technology, precious metals mining, financial services and automotive. Well-known companies that are dividend aristocrats include:

Are dividend aristocrat stocks good investments?

It should be noted that even dividend aristocrats are not entirely immune from the havoc a recession can wreak on a company’s financial health.

“Of the 60 dividend aristocrats that existed in 2007, 16 of them cut or suspended their dividends during the financial crisis,” notes Simply Safe Dividends, which offers the Dividend Safety Score system alongside a suite of portfolio-tracking tools. “While bank stocks accounted for the majority of those cuts, it’s never easy to predict which sector will experience the next shock.”

During the economic shock induced by the COVID-19 pandemic in 2020, 25 percent of the companies covered by Simply Safe Dividend’s Dividend Safety Score cut their dividends.

Choosing to invest in a dividend stock generally comes down to your risk tolerance. The best way to mitigate your risk of losing money by investing in a dividend stock is to perform adequate due diligence.

What is Neuralink?

Neuralink is a neurotechnology startup that was founded in 2016 by Musk, who is perhaps best known as the CEO of Tesla (NASDAQ:TSLA), in 2016.

It was first reported on in 2017, and two years later, in June 2019, the company held and streamed its public launch event to showcase the technology it is developing: an innovative brain-computer interface (BCI).

Instead of using traditional electrodes, which according to a company whitepaper can be bulky and damaging to brain tissue, Neuralink’s BCI uses “ultra-thin threads” that are implanted into the brain using a robotic device that resembles a sewing machine. Once implanted, the electrodes develop a BCI, stimulating the brain and monitoring activity, and the threads connect to a custom-designed chip that can read data from groups of neurons.

Potential uses of BCI technology include helping paralyzed individuals regain control of their limbs and restoring vision. Musk told his audience during Neuralink’s 2019 launch event that this technology could have a wide range of applications in medicine, such as restoring sensory and motor function in people with spinal cord injuries or neurological disorders. Additionally, an early goal of development is translating neuron signals into computer commands, which would allow humans to control devices like computers and smartphones with their brainwaves.

Musk has claimed that BCI could even facilitate direct communication between humans and machines, although some members of the neuroscientific community are skeptical. Other experts have suggested that Neuralink’s work is not necessarily novel — as Dr. Jason Shepherd, an associate professor of neurobiology at the University of Utah, told Business Insider in 2020, “All the technology that he showed has been already developed in some way or form. Essentially what they’ve done is just package it into a nice little form that then sends data wirelessly.”

Other experts in the field have ethical concerns about how Neuralink is conducting its clinical trials and the broader implications of disregarding established standards.

“If you decide to play with fire in a house, you increase the risk threshold not only of yourself but of the whole house,” Marcello Ienca, a professor of ethics of AI and neuroscience at Technical University of Munich, told Forbes. “My fear is that Neuralink’s disregard for the ethical aspects of their technology may cause a backfire effect for the entire neurotechnology community.”

How much is Neuralink worth?

Neuralink was reportedly valued at around US$8 billion in July 2024, but as a privately held business, much of its financial information is kept under wraps. That said, US Securities and Exchange Commission (SEC) documents containing information about its funding rounds provide some insight.

The earliest came in 2017, when the company raised US$27 million out of a planned US$100 million in a Series A funding round. In April 2019, SEC filings show the company acquired US$39 million out of a planned US$51 million in a Series B funding round. A limited amount of information has been made available to the public, and the identities of the investors have not been publicly disclosed. However, some news outlets have speculated that funding could have come from a combination of venture capitalists, or from Musk himself and the Neuralink team.

In 2021, Neuralink received what was then its largest amount of money to date, raising US$205 million in a funding round led by tech investment firm Vy Capital. Other participants included Google Ventures, the venture capital arm of Alphabet (NASDAQ:GOOGL); OpenAI CEO Sam Altman; Fred Ehrsam, co-founder of Paradigm and Coinbase (NASDAQ:COIN); and Ken Howery, co-founder of PayPal (NASDAQ:PYPL) and Founders Fund.

In May 2023, as Neuralink faced public backlash over accusations of animal mistreatment, it received clearance from the US Food and Drug Administration (FDA) to run the first human trial of its brain implant. The company’s latest round of funding, worth US$280 million, came shortly after in August 2023; Reuters reported that it was led by Founders Fund. The filing was amended in November 2023 to reflect an additional US$43 million, bringing the total to US$323 million.

Is Neuralink approved for human trials?

In May 2023, the US Food and Drug Administration granted Neuralink clearance to run the first human trials of its brain implant. Two human clinical trial participants have received the Neuralink implant as of August 2024.

Neuralink opened a patient registry in early 2023 that allowed people who had at least one of a qualifying list of conditions to volunteer for upcoming clinical trials. The first study, dubbed PRIME — Precise Robotically Implanted Brain-Computer Interface — is specifically focused on patients with cervical spinal cord injuries or amyotrophic lateral sclerosis.

Musk said in January 2024 that the brain chip being used for testing is named Telepathy. It is about the size of a coin, and each one is equipped with over 1,000 electrodes 20 times finer than human hair that fan out into the cerebral cortex. The first operation was performed on January 29 of this year. Musk shared the results on X, formerly known as Twitter, stating that the patient was “recovering well” and that “initial results show promising neuron spike detection.”

The next update came during a Spaces event on X on February 19, during which Musk stated that the patient had recovered and was able to move a computer cursor using thought. However, the lack of third-party validation and limited information shared with the public about the trial has raised concerns about transparency among some researchers. In mid-May, Neuralink’s first patient Noland Arbaugh, who is quadriplegic, shared his experiences in his first 100 days with the Neuralink brainchip.

According to Arbaugh at the time, despite some setbacks, he believed his trial to be a success. One of the largest benefits was that the Link allowed him to operate his computer and other devices lying down, while he needed assistance for set up and repositioning with prior devices. This gives him more freedom to live on his own time, he explained. Additionally, it offers greater control than other devices he has used.

‘The games I can play now are leaps and bounds better than previous ones,’ Arbaugh said. ‘I’m beating my friends in games that as a quadriplegic I should not be beating them in.’

Reuters reported in late May that Neuralink is set to enroll another three patients in its clinical trial. The study has an estimated primary completion date of 2026, and fully completed by 2031. In early August, Musk shared that Neuralink had implanted a brain chip into its second clinical trial patient, who is paralyzed following a spinal cord injury from a diving accident.

How to invest in Neuralink?

With Neuralink continuing to move forward, how can investors get a piece of this up-and-coming technology?

As mentioned, the firm has yet to go public, so purchasing Neuralink stock is not an option for many investors. The vast majority of Neuralink’s funding has come from venture capitalists and a handful of billion-dollar companies.

However, there are still ways for investors to potentially profit from Neuralink’s growth before it goes public. For example, investing in publicly traded companies that have invested in Neuralink can provide an indirect stake. Many of Musk’s investors are venture capital firms or private individuals, but some of these firms, such as Google Ventures, are subsidiaries of publicly traded companies. By investing in Alphabet, individuals can indirectly benefit from its investment in Neuralink, as any profit from the investment could potentially flow back to Alphabet.

This indirect approach can be a viable strategy for individuals who want to gain exposure to Neuralink without waiting for the company to go public. Coinbase is another company that offers indirect exposure to Neuralink’s growth; the enterprise is owned by Ehrsam, whose venture capital fund Paradigm has invested in Neuralink.

Those who qualify as accredited investors could also potentially invest in a Neuralink funding round. According to the SEC, an accredited investor must have a net worth of at least US$1 million, not including the value of their primary residence, or an annual income of at least US$200,000 for individuals and US$300,000 for married couples. There must also be a reasonable expectation of the same level of income in the year of filing.

Individuals can also qualify as accredited investors if they are an investment professionals in good standing. In that case, the SEC’s guidelines indicate that they need to hold either a general securities representative license, an investment advisor representative license or a private securities offerings representative license.

Entities like banks, insurance companies or investment firms with total assets of at least US$5 million may also qualify as accredited investors. Certain types of entities, such as private business companies and small business investment companies, may be exempt from the standard asset value requirements for accredited investor status.

It’s also worth noting that Neuralink is just one of several companies currently working on developing BCI technology. According to research by IDTechEx, companies working to develop invasive brain-computer interface solutions have amassed nearly US$1.5 billion in funding.

One competitor is Synchron, a company with similar ambitions that has received funding from the likes of Jeff Bezos and Bill Gates. On February 1, Synchron acquired a minority stake in German manufacturer Acquandas. This acquisition secures exclusive access to Acquandas’ advanced metal layering technology, which is a critical component for Synchron’s device, the Synchron Switch.

Synchron launched a patient registry in April to prepare for an upcoming large-scale brain implant trial required to apply for US Federal Drug Administration (FDA) medial device approval. In July, the company announced one of the patients implanted with the Synchron brain computer interface was able to use his direct thoughts to control the cursor on the Apple Vision Pro.

Precision Neuroscience is another company working in the brain-computer interface field, although it is also private. Founded by one of Neuralink’s co-founders, the BCI company is currently testing its Layer 7 Cortical Interface, which is a thin, flexible film that sits on a brain’s gray matter instead of being implanted in it, making it less invasive. Precision Neuroscience recently set a record for the highest number of electrodes used to detect a person’s thoughts at 4,096 when they combined four of their interfaces on one brain.

Although the field is nascent, the potential for BCI to impact various industries such as robotics, medicine and biotech has generated a growing amount of interest and excitement. Additionally, heightened interest in the artificial intelligence (AI) sector has led to more research and exploration in related fields, and has attracted increased investment in fields benefiting from AI advancements, including robotics and medicine. AI is also being used as a tool to help discover new insights and make moves that might not have been possible without its use.

Finally, one of the simplest ways to gain exposure to Neuralink would be through an exchange-traded fund (ETF) that invests in companies related to BCI technology. While there isn’t an ETF that exclusively focuses on BCIs, there are funds that offer exposure to related themes. One example is the iShares Healthcare Innovation ETF (LSE:HEAL,OTC Pink:BLKIF). This fund consists of companies that are developing new and innovative healthcare technologies.

Two other options are the Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ), which includes companies that are involved in the development of robotics and AI, and the ARK Innovation ETF (ARCA:ARKK), which focuses on disruptive technologies across multiple industries, including healthcare and robotics.

As with any investment decision, it’s important to perform due diligence on available options, including comparing ETFs, to ensure they align with one’s investment goals.