Are you a stock trading maestro looking to expand your repertoire? Or perhaps you’re a newbie investor searching for that all-important formula to attain success in gaming the investing sphere? Mayhaps you’re just looking to earn a little extra on the side?Regardless of your experience in this ever-volatile market, dividend stocks are some of the best (and stable!) ways of earning an income albeit it a plodding, minute one.But hey, at least you don’t have to put in much effort to earn some moolah by leveraging on dividend stocks.
Add A Little Bit of Magic To Your Investment Portfolio
First things first, what are dividends?Basically, dividends are payouts that act like an allowance or monetary remuneration paid from a company’s net earnings over a period of time i.e. over a fiscal year. To receive said dividend payout, you must be in possession (either from buying or by holding) of a particular company’s shares before or by the Ex-Dividend Date. In this case, there are five types of dividends you could look into when you decide to jump into the magical world of dividends:
This is one of the most basic and popular forms of dividend stocks. The payout is directly deposited into the trading account of the shareholder on or after the payout date.
A payment to shareholders made in the form of more shares rather than as cash. This type of dividend has the advantage of rewarding shareholders without affecting much of the company’s cash balance. On the downside, it may dilute the earnings per share of said company.
This is another alternative to cash or stock dividends as shareholders can be given shares of a subsidiary or even any physical assets owned by the company such as inventories, equipment, or real estate.
Companies that are short on cash often opt to pay scrip dividends to their shareholders in lieu of money. And when a company offers scrip dividends, it offers its shareholders a choice to receive their dividends in the form of more shares or in cash (whenever there is more cash on hand). An important thing to note about scrips is that it’s an easy way for investors to increase the size of their holdings without paying extra fees or charges, while also earning some interest in the process.
At the end of a company’s lifespan, all assets belonging to the company will be liquidated and sold for cash. After paying off debts and all other obligations, the shareholders will then receive whatever remains.
While not all of the types of abovementioned dividends will apply to you, as a new investor, they are still important facts that you should be aware of while doing your due diligence and research.Other key things to note regarding dividends are:
- A high dividend yield doesn’t necessarily mean a good thing.
- The payout ratio could be a better measure of a company’s financial standing.
- The stock price will inevitably be adjusted in a downward trend after the Ex-Date.
- Most companies will distribute dividends once or twice a year, while others may issue them every three months.