What Are Dividend Stocks?
Companies pay out quarterly dividends to preferred and common stockholders. These payments normally come from a company's profits. Annualized dividends of 32 cents, therefore, are paid out in four installments of 8 cents per quarter.
Unlike most cash dividends, one-time dividends do not occur on a regular schedule. These may be paid when a company makes a windfall profit, sells an asset or has a sudden influx of cash from a non-investing source. These dividends can take the form of cash, property or extra awards of stock.
Sometimes, a firm issues more stocks as a dividend as opposed to a cash payout. This gives large investors a long-term advantage as future payouts include more cumulative money as the business grows. Stock dividends are common among companies that have trouble paying investors in cash. Stock dividends are apportioned according to the fractional value of the dividend relative to the whole value of the share. For instance, a business may issue 0.10 share per one share owned, which means an investor earns one entire share in the dividend for every 10 shares owned previously.
The details of dividend payouts are usually determined by a company's board of directors. When the board decides to pay dividends per share to shareholders of record, an ex-dividend date is announced. The ex-dividend date is the time past which the dividend does not pay out. Anyone who buys stock past the ex-dividend date cannot earn the dividend announced on the declaration date. The payment date occurs when investors receive the actual payment.
Dividend stocks can create wealth for investors by paying out regular earnings. Normal dividends are a few cents per share, per financial quarter, but over thousands of shares and many years, a portfolio may build up substantial wealth.