>> Well there will be hardly anyone who does not like to take rewards. We all like to get reward and the name of one such reward is dividend which is s term related to the stock market. This is a reward that the company gives to its shareholders. Dividend can be issued in many forms like in cash, in stocks or in any other form. This dividend is the net profit of the company that company shares with its shareholders.
>> The Company's dividend is paid by the company's board of directors and this dividend also requires the approval of the shareholder. This is such a payment that a Publicly listed company gives to its investor because the investor or share holder invests his money in that company. When you have dividend paying stocks, you get a share in the profit of the company by which you get profit. Apart from the company, many mutual funds and many exchange traded fund i.e. (ETF) also give dividend.
>> By the way, the major portion of profit remains with the company, which it does in growth and if the company wants the rest of the profit it can route towards its shareholder. Many times it also happens that even if the company does not make profit, the company gives dividend so that the record of giving dividend of the regular company is not disturbed. But
What is the reason for the company to pay Dividend?
>> Dividend is a sign of financial health and company offers dividend to attract investors and when all the expenses of the company are covered, then the company pays the remaining money as dividend. That's why most such mature companies do dividend payouts which requires little capital for reinvest.
>> But not every company gives dividend because every company needs to reinvest in its growth. and in such a situation it is not possible to bear the expense of dividend, that is why such a young growing company does not pay dividend. Similar mature company do like tech and bio-tech companies who find it necessary to reinvest their capital to expand their growth.
>> Some investors prefer a similar company as dividends are taxed at ordinary income rates. In such a situation, if the non-dividend paying company grows its capital by reinvesting, then the investor makes profit on the increase in the stock price. and it is a profit that is not taxable until it is sold. That is, you can earn profit even by investing in such reputed and growing company and that too without dividend. In this, you have to take proper knowledge and choose the right company.
Which is Best Dividend Payer Company
- Basic Material
- Oil and Gas
- Banks and Financials
- Healthcare and Pharmaceuticals
- Utilities
- Real Estate Investment (REIT)
- Master Limited Partnership (MLP)
Why are Dividend so Important
>> Dividends give this message to the investor that there is stable cash flow in the dividend paying company and that company is also generating profit, which the investor's faith increase in that company and faith of the investor helps in the progress of the company, That's why dividends are so important.
What about dividend Related dates
>> There are some important dates related to dividend such as announcement date, Ex Dividend date, Record date and Payment date.
- Announcement Date - Company announce dividend
- Ex Dividend Date - Expire Dividend eligibility
- Record Date - The company gets to know which shareholder is eligible for the dividend
- Payment Date - Company credit amount to investor account
Let's talk about different types of dividends
Cash Dividend
>> This is the most common dividend type in which companies transfer direct payment to the shareholder's broker account.
Stock Dividend
>> In this type, Instead of paying cash, the company pays in the form of additional shares. If we talk about dividend reinvestment program (DRIPS), in this type of dividend, the investor reinvest the dividend in the company's stock at a discount.
Special Dividend
>> Talking about special dividends, then these are extra dividends i.e. they are one time dividend payments. These are also called regular dividends. These dividends are available when the company has unexpected cash. These are different from the regular company's dividend because regular dividends are paid by regular intervals. when the special dividend goes only once and this cash amount can also be more than the regular dividend.
Preferred Dividend
>> Preferred stocks are stocks that act less like a stock and more like a bond. Dividend received on preferred stocks are generally fixed. Whereas dividends received on Preferred stock are usually paid quarterly.
Let's talk about two strategies available for dividend investing
- High Dividend Yield Approach
- High Dividend Growth Rate Strategy
You have to choose one of these strategies!
>> High dividend yield approach focuses on slow growing companies. Investing in this type of company which has high cash flow can generate immediate income and in a high dividend growth strategy, your focus is on buying stock in the same company that has low dividend but the company has quick growth in such a situation, you can buy profitable stock at a lower rate and in a period of five to ten years, you can make a large amount of income.
>> Which of these two strategies would be best for you it will depend on you as the investor that your goal is to get immediate stable income or to make long term growth and profit. Before investing, you also have to be aware about dividend safety, that's why let's know about it.
Let's talk about Dividend Safety
>> It is very important to pay attention to dividend safety while investing in a company and dividend safety can be determined by how risky the company is, for how long is his progress continuous in the market or not, company is new. Think about investing only after knowing such simple things and while investing, check the company's stable income and cash flow history.
>> Before buying shares of any company, also check its dividend payout ratio so that you can get an idea of the growth of that company. from an investor's point of view, a healthy dividend is in the range of 35% to 55%. That is, the company distributes about 50% of it's earnings in the form of dividend only, that company is considered to be well stable and the leader company of that industry.
>> To understand this, suppose that the cash flow statement of a company shows that the company has paid an amount of 3 billion as dividend and the income statement shows that the net income of the company is 6 billion so the dividend ratio will be calculated like this (dividend ration + total dividend by net income) That is, in that year the company has paid 50% of its profit to the shareholder as dividend. That means that the company offers healthy dividend and you can think of investing in it.
>> Now if we are planning to buy the stock considering the profit from dividend so you should also know that if you want to buy stock and sell it immediately, then you will have to pay normal tax rate on that income and the tax on qualified dividend will be less. These are stock that are kept for 60 days of more instead of selling them immediately.
>> What would you like to do with the dividend that you get, it will be your choice that you will reinvest this dividend money in buying new shares of that company or will use it to buy the stock of another company or save or spend that cash, it will be your choice.
>> So friends, in this way, you have taken all the information about the dividend in this message, by doing that you can be ready to make profit in the stock market very easily. and this information has been of great helps to you and we hope you share this message with other people and also by writing in the comment box, tell us how did you like this message.
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