What are Dividends?
A dividend is the distribution of a portion of the company’s earnings, decided and managed by the company’s board of directors, and paid to a class of its shareholders.
When you own stocks that pay dividends, you are receiving a share of the profits that the company makes.
Important Dividend Dates
Here you have some important dividend dates to keep track of:
- Announcement Date: Dividends are announced by the Company on the announcement date.
- Ex-Dividend Date: The date on which the dividend eligibility expires is called the ex-dividend date. For instance, if a stock has an ex-date of Monday, May 5, then shareholders who buy the stock on or after that day will NOT qualify to get the dividend. Shareholders who own the stock one business day prior to the ex-date will receive the dividend.
- Record Date: The record date is the cut-off date, established by the company in order to determine which shareholders are eligible to receive a dividend.
- Payment Date: The company issues the payment of the dividend on the payment date, which is when the money gets credited to investors accounts.
What Is Dividend Investing?
Dividend investing is a strategy of buying stocks that pay dividends in order to receive a regular income from your investments.
To compare multiple stocks based on their dividend payment performance, investors can use the dividend yield factor which measures the dividend in terms of a percent of the current market price of the company’s share.
Passive Income – When you invest in dividend-paying stocks, you earn an income every time the stock pays you a dividend. This is money you earn no matter what, and to increase your income, you just buy more shares.
Dividend Aristocrats – These are Companies who have increased their dividend payments each year for the last 25 years.
Increasing the dividend payment is important to you because even if you own the same number of shares, you will earn more money every year.
Long term strategy – When the market is rising, it is easy to stay invested. When the market falls it gets harder to keep on holding. By investing in dividend-paying stocks you’re both earning an income stream by holding onto your investment as well as it is an opportunity to buy stocks at a discount price, which will give you a higher yield.
Are investing in dividends for me?
If you’re looking for ways to increase your passive income, a dividend strategy makes sense. Be sure you understand the risks. Don’t time the market. Stay invested over the ups and downs of the market.
Look for companies that have a history of stable income and cash flow. The more stable the money coming in to cover the dividend, the higher the payout ratio can be.
The long term viability of investing in dividend stocks and the ability of taking advantage of the eighth wonder of the world (compounding) also makes the strategy a very attractive one.
Dividend Compounding explained
This shows the number of dividends someone could have received if someone had bought $10,000 worth of shares in the company without reinvesting dividends! Isn’t that incredible?
Have a look at this, for the number of dividends one would have received if all the dividends were re-invested.
This is an example to show you the power of compounding with dividends.
If you liked this article, check out how to start investing in high yield dividends here:
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Undervalued Dividend Aristocrat Stocks
Happy Investing!