What is Dividend.pdf

A Dividend is a payment that the shareholders receive from a company’s earnings. When a company is profitable, management can choose to reinvest profits to help grow the business or distribute those profits to shareholders in the form of dividends.

1. What Is A Dividend & How To Get It?
ADividendisapaymentthattheshareholdersreceivefromacompany’searnings.
Whenacompanyisprofitable,managementcanchoosetoreinvestprofitstohelpgrow
the business or distribute those profits to shareholders in the form of dividends.
Dividendscomeinseveralforms,butthemostcommoniscash,whichisdepositedinto
shareholders’investmentaccounts.Forexample,ifacompanydeclaresa$0.30
dividendandyouown100shares,you’llreceive$30.Typically,maturecompanieswith
strong cash flows ar e more likely to pay dividends.
How Does Dividend work

2. ManyinvestorsseektheincomeassociatedwithDividendsandoftenviewthemasa
signofstrengthandpositiveexpectationsforfutureearnings.Companiesoftenpay
dividendsquarterly;however,somepaysemi-annuallyorannually.Keepinmind,that
companiesaren’tobligatedtopayadividendandcanreduceorstoppayingitatany
time.
Youshouldalsobeawarethatsimplyowningstockonthedayitsdividendispaid
doesn’tnecessarilymeanyou’llreceivethedividend.Youmustbeashareholderearlier,
onwhat’scalledtheRecorddate.Becausestocktransactionstakeafewdaystoclear,
andtoensuretheaccurateallocationofdividends,thereisacut-offpriortotherecord
date called the ex-dividend date.
Thosewhobuythestockonoraftertheex-dividenddatearenoteligibletoreceivethe
upcomingdividend.Theimportantthingtorememberisthatyoutypicallyneedto
purchaseastockatleastacoupleofdaysbeforetherecorddatetoofficiallyownitin
time to be eligible to receive the dividend.
Thenumberofdaysbetweentherecorddateandthedaythedividendispaidvaries
fromcompanytocompanybutisoftenbetweenoneandsixweeks.Insteadofreceiving
dividendsascash,youcanalsooptforanautomaticdividendreinvestmentplan,or
DRIP,foreligiblesecurities.WithaDRIP,dividendsareautomaticallyusedtopurchase
additionalshares.Thisallowsinvestorstoaccumulatemoresharesovertimeandcan
potentiallycompoundreturnsbutalsoincreasesportfoliorisk.Someinvestors
specifically seekoutandinvestindividend-payingstocks.Dividendstockscanprovide
income and potentially enhance a portfolio’s overall returns.
InvestorscanmeasurethepercentagereturnfromdividendincomeusingDividend
yield.
Dividend Yield

3. Yieldisthepercentreturnofanassetpaidoveroneyear.Fordividendstocks,theyield
isthesumofthelastfourquarterlydividendsdividedbythepriceofthestockmultiplied
by100.Let’slookatanexample.Saythere’sa$30stockthatoverthepastfourquarters
paiddividendsof$0.20,$0.20,$0.20,and$0.18,totaling$0.78pershare.Thismeans
the stock has a dividend yield of 2.6%.
Dividendyieldessentiallytellsyouhowmuchreturnyou’regettingforthepriceofthe
stock.Italsoallowsyoutocomparethedividendsofstockswithdifferentprices,as
wellasotherinterest-bearingsecurities,likebondsorCDs.Forexample,ifinvestors
werefacedwiththedecisiontopurchaseabondyielding1.5%orastockwithadividend
yield of 2.6%, they may potentially choose the latter.

4. Inadditiontopotentiallyhigheryield,manyinvestorslookforconsistentandgrowing
dividendsovertimeasanindicationofcompanyhealthandthelikelihoodofpaying
futuredividends.Althoughdividendstockshavemanybenefits, theydohavesome
uniquerisks.Becausethey’reoftenconsideredanalternativetointerest-paying
securities,
Dividendstocksarevulnerabletochangesininterestrates.Inarisingrateenvironment,
investorsmightselldividendstocksandshiftmoneyintoothersecuritiesyieldinga
higherreturn.It’salsoimportanttorememberthatdividendsaren’tguaranteed.
Companiesthatpayunusuallyhighdividendsmaynotbeabletosustainthem,andif
dividendsarecut,itmightsendthestockpricetumbling.Despitetheserisks,
dividend-payingstockstendtoprovideincomewhilestillallowingforthepotentialof
stock price appreciation.
Important Dates to Get Guaranteed Dividend
Wheneveryouhearacompanydeclaringadividend,therearemanydateslinkedto
them.
Dividend Declaration Date
ThefirstdateistheDividendDeclarationDate,theboardofdirectorsannouncesthe
dividendwithitsamount.Otherthanthistherearetwodatesnamingrecorddateand
payment date and the company announces these dates simultaneously.
Record Date
Therecorddateisthedateonwhichtheinvestorsshouldbeintherecordsofthe
company’sshareholdersiftheywantadividendmeansthatiftherecorddateis5th

5. Marchandonthisdayaparticularpersonisinthelistofthecompany’sshareholders,
hewillgetthedividendbutherecomesaproblem,wheneveryoubuyashareyou
receive it after T+2 days meaning you have to wait for 2 trading days to receive it.
Ex-Dividend Date
TheEx-DividendDateisthedatethatissettwodayspriortotherecorddate.So,ifan
investorwantsthedividend,theyneedtopurchasethesharesbeforetheex-dividend
date so that on the record date, the name of the investor is on the list.
Dividend Payment Date
Thefourthdateisthedividendpaymentdateandonthisdate,thedividendispaidtothe
shareholderswheneveracompanydeclaresadividend,theytellyouifit’sinterimor
final.
TheinterimdividendistheonethatisannouncedduringthefinancialyearThisdividend
can be taken back with the consent of the shareholders.
Thefinaldividendistheonethatisgivenoutaftertheclosingofthefinancialyearandis
announcedatthecompany’sannualgeneralmeeting.Bythistime,theyear-end
financials of the company are prepared and they cannot be taken back.

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