For some traders out there, they may have heard of the word “Dividend” but did not give much thought about it. But why should you and why is this important? Basically, dividends are the distribution of portion of the company’s profit to its group of shareholders as what determined by the board of directors of the company in question.
How Dividends are Paid?
Typical shareholders of dividend-paying firms are usually eligible so long as they have stock prior the ex-dividend date. It could be paid in 2 forms; one is through cash and second is by having additional stock from the company. Dividends should be approved by shareholders using their voting rights. Despite the fact that cash dividends are pretty common, it may be issued as other properties or as shares. Together with the companies, there are many exchange-traded funds or ETFs and mutual funds that are paying dividends.
Why Check out for Dividends?
Dividends are token reward paid among shareholders just for investing in the equity of the company. It normally originates from the net profits of the company. As a matter of fact, dividends can be a great tool as well in paying back personal debt collection agency especially if you borrowed from them to make an investment. While majority of the profits are kept within the organization as retained earnings in which is represented by the money used by the ongoing as well as future activities of the business, the rest could be allocated to shareholders in form of dividends.
There are instances as well in which companies might pay dividends even if they are not making enough profits. They might do so in an effort not to tarnish their records of paying dividends on time.
When Dividends are Paid?
The company’s board of directors has the power of deciding to issue dividends over different timeframes and with different rates too. Therefore, dividends may be paid at a scheduled plan like per month, per quarter or per year. To give you an example, Unilever (UL) as well as Walmart Inc. (WMT) are making quarterly payments regularly.
Companies that Pay Dividends
Bigger and more established firms that have more predictable profits are usually the ideal dividend payers. Such companies have the tendency of issuing regular dividends for they are seeking to maximize shareholder’s wealth apart from the normal growth. Companies that you have to take into consideration include oil and gas, basic materials, financial and banks, utilities and healthcare and pharmaceuticals.