An Amazing Guide To Stock Dividends
In this article, we will explain everything about stock dividends to you in simple and plain terms. After reading this article, you won’t have any confusion about it/. Let’s read ahead.
Investment in the company share is a way of earning profits. This, however, involves market forces. As a result, one may suffer a loss when the share price goes down. On the other hand, company shares can generate profit when the market is buoyant.
All share prices depend on bullish and bearish tendencies. If the market is bullish, one can earn a profit. If the market is bearish, the investors in the stock market will suffer loss.
Investment in the stock exchange is common in almost all countries dotting the world. This is an old system of earning money through the purchase of a share and selling it when the price of the share appreciates earning profit. Many consider it a continuous process.
How Do Stock Dividends Work?
A dividend earned on a share is regular payments of profit made to you on investing in a particular company’s stock. However, you must note that the stocks or shares of all companies don’t pay dividends.
The traditional working principle of dividend follows the system that by buying a share or a stock in a company, you are a part of it being an investor. You have the right to the profit of the company being a shareholder or investor.
You get a part of the profit of the company which is known as a dividend. Most companies pay dividends to shareholders on a regular basis. Some, however, don’t pay. But the numbers of non-dividend paying companies are few.
Types Of Dividends
The dividends are of different kinds. Usually, the companies pay the following types of dividends:
- Direct Cash Payment: Such type of dividend is transferred by the company directly to the officially declared brokerage account of the investor.
- Dividend in the form of Giving Additional Stocks: Some companies give additional or extra shares to the investors. In this type of dividend payment, no cash is given to you. Instead, you get the additional number of shares thus allowing your stock holding to go up.
- Special Dividend: In this type of dividend, the shareholder gets a dividend over a period of time instead of getting it regularly.
- Preferred Dividend: Some companies have developed a payment mechanism under which your share of stock is treated as a bond by the company. Usually, such a type of dividend is paid on a fixed date or over a particular period.
Who Receives Dividend Payments?
Anyone who has invested in a dividend-paying company can receive the dividend payment. Usually, an individual who has purchased a stock would be entitled to the dividend payment.
How often Are Dividends Paid?
The periodicity of dividends can vary a little from one country to another. In the USA, you get dividend payments quarterly. However, some US companies do pay monthly or semi-annually.
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Why Buy Dividend Stocks?
Share or stock of a company can be your regular source of income. For this, however, you have to select a dividend-paying company that pays regularly thus making your income generation regular.
This is the primary reason why you should invest in stocks. If you want a generation of cash income, you should think of investing in company shares. You should buy shares due to the following reasons:
Regular Income Generation
Generation of additional income to make up for the losses that your real income erodes due to inflationary tendencies. Thus, shares can be a buffer to combat the price rise.
Reselling or downloading shares of important companies can help you much when you need money urgently for different personal purposes.
You can remain assured of growth in stock price over a period if you have invested in some company.
Shore away your additional or extra income for a productive purpose by buying stocks.
How To Evaluate Dividends
As an investor, you can evaluate dividends on the basis of conducting little research or studying the trend of Earning Per Share of different companies. At the same time, you must also study the trend of dividend payment of a company in which you wish to invest.
In this regard, the following may be useful to you:
- Dividend yield: This is calculated based on the dividend that per share earns in a year. In other words, the annual yield of one share.
- Dividend payout ratio: This is the part or portion of the net income of a share that is calculated to determine the profit a particular share is entitled to. This determines your dividend payment. Here, it is important for you (as an investor) to know that a company paying 80% or below the amount as the payout is better than a company paying out 100% of its income.
- Dividend per share: A profit-making company would maintain its annualized Dividend Per Share payment. This is calculated on the performance of a share of the company in the bourse. The dividends are paid accordingly or on the basis of performance.
A share market is a good place for investment if you want to earn profit. It, however, is marked by bullish and bearish tendencies. Here, you must act prudentially to book profit. Buying shares can be a hedge against unforeseen future as it can help you meet the financial need that you may have in extraordinary circumstances when you need money. This is always a good avenue for investment also.
FAQs (Frequently Asked Questions)
Question 1: Is dividend paid on paid-up capital?
Answer: Yes, the dividend is paid on the paid-up capital. You should know that the paid-up capital is the capital money that the company receives against the number of shares sold by it. This is the money of the investors. Hence, the dividend is paid on the paid-up capital.
Question 2: What is a capital dividend?
Answer: This is also termed a return on capital. As the term indicates, it is a form of payment that a company makes to the investors that are drawn from its paid-in-capital. The paid-in-capital can be defined as the equity of an investor or shareholder.
Question 3: Is the dividend paid monthly?
Answer: In the USA, the dividends are paid either quarterly or annually. It is not paid monthly.