What Is a Dividend?
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.
Dividends may be paid out as cash or in the form of additional stock.
What Is a Dividend?
Understanding Dividends
Dividend-Paying Companies
Important Dividend Date
What Is a Dividend?
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.
Dividends may be paid out as cash or in the form of additional stock.
KEY TAKEAWAYS
A dividend is the distribution of corporate profits to eligible shareholders.
Dividend payments and amounts are determined by a company's board of directors.
Dividends are payments made by publicly listed companies as a reward to investors for putting their money into the venture.
Announcements of dividend payouts are generally accompanied by a proportional increase or decrease in a company's stock price.
Many companies do not pay dividends and instead retain earnings to be invested back into the company
Understanding Dividends
Dividends must be approved by the shareholders through their voting rights. Although cash dividends are the most common, dividends can also be issued as shares of stock or other property. Along with companies, various mutual funds and exchange-traded funds (ETFs) also pay dividends.
A dividend is a token reward paid to the shareholders for their investment in a company’s equity, and it usually originates from the company's net profits. While the major portion of the profits is kept within the company as retained earnings—which represent the money to be used for the company’s ongoing and future business activities—the remainder can be allocated to the shareholders as a dividend. At times, companies may still make dividend payments even when they don’t make suitable profits. They may do so to maintain their established track record of making regular dividend payments.PART OF
Guide to Dividend Investing
TABLE OF CONTENTS
EXPAND
What Is a Dividend?
Understanding Dividends
Dividend-Paying Companies
Important Dividend Date
Impact of Dividends on Share Price
Why Companies Pay Dividends
A Note About Fund Dividends
Are Dividends Irrelevant?
Buying Dividend-Paying Stocks
What Is a Dividend?
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.
Dividends may be paid out as cash or in the form of additional stock.
KEY TAKEAWAYS
A dividend is the distribution of corporate profits to eligible shareholders.
Dividend payments and amounts are determined by a company's board of directors.
Dividends are payments made by publicly listed companies as a reward to investors for putting their money into the venture.
Announcements of dividend payouts are generally accompanied by a proportional increase or decrease in a company's stock price.
Many companies do not pay dividends and instead retain earnings to be invested back into the company.
What Is A Dividend?
Understanding Dividends
Dividends must be approved by the shareholders through their voting rights. Although cash dividends are the most common, dividends can also be issued as shares of stock or other property. Along with companies, various mutual funds and exchange-traded funds (ETFs) also pay dividends.
A dividend is a token reward paid to the shareholders for their investment in a company’s equity, and it usually originates from the company's net profits. While the major portion of the profits is kept within the company as retained earnings—which represent the money to be used for the company’s ongoing and future business activities—the remainder can be allocated to the shareholders as a dividend. At times, companies may still make dividend payments even when they don’t make suitable profits. They may do so to maintain their established track record of making regular dividend payments.
The board of directors can choose to issue dividends over various time frames and with different payout rates. Dividends can be paid at a scheduled frequency, such as monthly, quarterly, or annually. For example, Walmart Inc. (WMT) and Unilever (UL) make regular quarterly dividend payments.
Companies can also issue non-recurring special dividends, either individually or in addition to a scheduled dividend. Backed by strong business performance and an improved financial outlook, Microsoft Corp. (MSFT) declared a special dividend of $3.00 per share in 2004, which was way above the usual quarterly dividends in the range of $0.04 to $0.08 per share.
Dividend-Paying Companies
Larger, more established companies with more predictable profits are often the best dividend payers. These companies tend to issue regular dividends because they seek to maximize shareholder wealth in ways aside from normal growth. Companies in the following industry sectors are observed to be maintaining a regular record of dividend payments:
Basic materials
Oil and gas
Banks and financial
Healthcare and pharmaceuticals
Utilities
Companies structured as master limited partnerships (MLPs) and real estate investment trusts (REITs) are also top dividend payers since their designations require specified distributions to shareholders.4 Funds may also issue regular dividend payments as stated in their investment objectives.
Startups and other high-growth companies, such as those in the technology or biotech sectors, may not offer regular dividends. Because these companies may be in the early stages of development and may incur high costs (as well as losses) attributed to research and development, business expansion, and operational activities, they may not have sufficient funds to issue dividends.
Even profit-making early- to mid-stage companies avoid making dividend payments if they are aiming for higher-than-average growth and expansion, and want to invest their profits back into their business rather than paying dividends.
Important Dividend Dates
Dividend payments follow a chronological order of events and the associated dates are important to determine the shareholders who qualify for receiving the dividend payment.
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