Shares and Dividends

Let us properly introduce to you the term dividends, what it is, and how it works.

What are Dividends?

A dividend is the distribution of a portion in a company’s earnings. The distribution is decided by the company’s board of directors and paid to a division of its shareholders. Dividends can be issued as cash payments, shares of stock or other property available to the company.

The company’s board of directors has the authority to choose to issue dividends over various timeframes and payout rates. But they are generally issued monthly or quarterly. It is also a common practice among companies to issue special dividends per person or to everyone at the same time with a scheduled dividend.

How does a Dividend work?

There are various dates that the company can use for issuance of a dividend. Here are the terms that you should be aware of:

·         Dividend Declaration Date: This is the date that the company’s board of directors announces that a dividend will be paid. The board determines the amount paid and when it will be paid to shareholders on record.

·         Dividend Record Date: This is the date when a company reviews its books to determine its “shareholders of record.” If you’re a shareholder of the company and are holding a particular stock on this date, then you will receive the firm’s dividend payment.

·         Ex-dividend Date: Once a record has been determined, the ex-dividend date will then be assigned by the stock exchanges or the National Association of Securities Dealers (NASD). The ex-dividend date for stocks usually takes place two business days prior to the record date. If you buy the stock before the ex-dividend date, then you will receive the dividend payment. But if you buy the stock on or after the ex-dividend date, then you will not be entitled to receive the dividend payment.

Why are Dividends important?

 As an investor, you can rely on dividends to become another source of income.

For instance, let’s say that you have retired and have a significant portion of your investment portfolio in stocks. Even if the prices of your shares increase over time, you won’t really be able to realize the capital gains until you sell your shares.

However, if the stocks you have pay dividends, you will receive checks in the mail for your share of the companies’ profits.

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