Investing in dividend paying stocks is great for your portfolio, and this article will provide the basic terms you need to know about dividends- explained.
Perhaps you are thinking of investing in a business that has proven to be financially rewarding to its shareholders, or you are seeking avenues to invest your hard-earned money in opportunities that can reap more rewards and multiply your wealth in the future.
Whatever your motivations are for investing, you need to understand the most fundamental concepts of this process so you can make the most knowledgeable decisions on the matter.
Here are some basic terms and their definitions you should fully understand as you explore dividend investing:
Dividend Investing Terms Defined:
- Cash Dividends
- Property Dividends
- Stock Dividends
- Declaration Date
- Date of Record
- Payment Date
Dividends are payments from a corporation or public company made to its shareholders from its earnings or profits. If you have invested in shares of stock towards a corporation, and that corporation earns money, the corporation can either choose to reinvest those earnings towards the corporation or divide the earnings among the shareholders.
Dividends are not always paid in the form of cash; other forms of remuneration such as properties, shares, or credits can be offered. Whether the company you are investing in chooses to pay dividends or not should be something you are aware of from the very beginning.
Cash dividends are payments issued in currency, and either electronically deposited to a shareholder’s bank account or in the form of a check. Some public companies pay out cash dividends at regular intervals during the year; many potential investors are attracted to the idea of “living off of dividends”, meaning they enter the world of stocks and investments in the hope of making enough from their investments to be able to live a wealthy lifestyle.
From the term alone, this means dividends that are in kind instead of in cash. Any items of tangible value that the corporation chooses to pay out as dividends are recorded at market value during the date of declaration.
These are payments in the form of additional shares of stock from the issuing corporation, or another subsidiary. A shareholder can choose to reinvest or keep their stock intact, or sell their shares and receive cash instead (this is subject to taxes, just like cash dividends).
Dividend Dates Explained
According to an article about investing on About.com (http://beginnersinvest.about.com/od/dividendsdrips1/ss/dividends-and-dividend-investing-101.htm), you should also take note of three important dates in the process of dividend payouts:
The intention to pay a dividend is officially announced by the Board of Directors; date of record as well as the actual payment date will be announced on this day.
Date of record
Also known as “ex-dividend” date, this is important to note as only the share owners on or before this date will be entitled to the dividend. Any individual who buys shares after the date of record will not be entitled to the upcoming dividend.
This is the actual date when the dividend payments are distributed to the shareholders.
This article is a part of our free Stocks that Pay Dividends Training Course. Check it out now!