Dividends

Dividends: A way to make money investing in stocks is by buying stocks that pay out dividends. What are dividends you may decide to ask. Well dividends are a portion of a company’s profits that is distributed to shareholders. This is not because companies have a soft spot, it’s because a company’s job is to make money for the owners. Also remember that dividends usually don’t represent all of a company’s profits.

In most cases dividends are paid out by the company to the shareholder in cash. However, there is sometimes instances of a company using more stocks to pay out dividends instead of cash. Stocks with a history of paying out good dividends will attract lots of investors. These companies tend to be well established and profitable, but don’t always offer much in the way of potential stock growth.  

It is important to note that companies are under no obligation whatsoever to pay out dividends. At quarterly meetings the board of directors of the company will set the number of dividends paid out. The dividend rate will be set out share by share. Ergo let’s say that you own 10000 shares paying out 10 cents of dividends each, then you will have made $1000. Also note that if a company starts to struggle financially or is concerned about the future it may stop paying out dividends to make some extra cash.

Types of Dividends: There are only two types of dividends you’ll ever be dealing with. The two types of dividends are referred to as fixed and variable. Fixed rate dividends go to owners of preferred stock. Whereas variable rate dividends go to people who own common stock. 

Important Dates: Now when it comes to dividends there are 4 important dates to remember. These dates are as follows:

1. The Declaration Date: On this day the board of directors shall set the dividends and make shareholders aware of when they will receive payment. The board will also announce when the Ex-Dividend Date shall be.

2. Record Date: This is day that the company sets the list of shareholders who will receive dividends. You must own the stock before this date to receive a dividend. 

3. Ex-Dividend Date: This date is the most important out of all the above dates. This date usually happens about 2 to 4 days before the record date. This day allows all pending transactions to be completed, considering it usually takes 3 days to settle a regular stock sale. 

4. Payment Date: Everybody’s favorite day it’s the date the payments are received by the person collecting dividends. This tends to happen about 2 weeks after the record date.