Dividend are the most alluring option of earning in share markets for the long term. Companies share small portions of their profit among the shareholders. This induces investors to stay with the company. Investors prefer to hold the stocks though the company is not growing good.
Dividends are away of sharing profits with the shareholders. The companies may also give extra stocks instead of profit share. Knowledge of following factors can bring a significant difference to your income.
How Dividends Work ?
Companies give dividend anon annual basis on the total annual profit. Sometimes the companies also pay dividends at every quarter. In the case of remarkable profits, companies also pay special dividends. The income through dividends is taxable under the IT Act of India.
What Are the Different Types of Dividends ?
There are common dividends and preferred dividends. The preferred dividends are on the basis of set rate. Common dividends are on the basis of the earnings. Remember that companies are not obliged to pay out the dividends. But preferred dividends are regular even in the not-so-good condition of the company.
Why Dividends are Beneficial ?
Dividends are popular among companies as well shareholders for different reasons. As history shows, dividend paying firms earn good reputation and growth. Stable payment of dividends serves as incentives to hold the stocks. The regular dividends also make the stocks attractive. This enables the companies to increase the prices. Investors stick to the stocks due to the regular dividends. They get a stable return on their capital with the lowest risk. If the company expands, the value of the stock goes up and give good returns to the investors. Hence, dividends give a win-win situation to investors as well companies.
Important Dividend Dates to Remember
Shareholders should keep in mind the following four important dividend dates. The company declares the dividend dates.
- Date of Declaration of Dividend – The directors announce dividend on the Declaration date. The amount or percentage of dividend and payment date are also declared. The company is liable to pay after the declaration.
- Date of Record – The date of record is the date to receive the declared dividend. You will receive the dividend if you are on the company’s books on or before this date.
- Ex-Dividend Date – This date is set by the stock exchange . If an investor purchases a stock on or after this date, the declared cash dividend will not go to him/her. But the seller of the stock will receive the dividend. This means if you buy shares on or after the ex-dividend date, you will not receive the payment. Instead, the seller will get it.
- Payment Date – As it suggests, the payment date is the date of dividend payment. You should be owning the stocks before the ex-dividend dates to get the payment.
Knowing this dates can save you from missing out on your due dividends. Keep in mind these important factors to make your investments smart. We will be soon posting more tips on dividends.