Investing in stocks of companies that pay a portion of their profits in the form of dividends to shareholders is a popular practice. These dividends provide shareholders with income throughout the period of stock ownership. Even when a company is not in high-growth phase, dividend payments are usually made, offering investors a stable type of investment. Prior to engaging in dividend investing, there are several things that investors should know.
Perhaps most importantly, individuals should be aware of the various terms used in the dividend investment world. The declaration date is the day the company board of directors announces that a dividend is forthcoming. The record date is the cutoff day for determining who is entitled to the dividend payment. A person who is not registered as a legal owner of shares on the record date is not entitled to receive the dividend. A dividend payment date is the date the dividend payment is made and it usually occurs on a quarterly basis.
The ex-dividend date represents the day the stock starts trading without a dividend included and this is usually two business days prior to the record date. Anyone who purchases stock on or following this date will not receive the declared dividend payment. Therefore, current shareholders may elect to sell their stocks on or after this date so they will receive a final dividend payment. Once the ex-dividend date arrives, the stock price usually adjusts itself to reflect the fact that no dividend will be included.
Dividend stockholders usually receive their dividends in the form of cash but some companies pay dividends as shares of additional company stock or even property. If an investor receives a cash dividend and does not need the money for immediate use, it can be reinvested in the company by purchasing additional shares of stock. This action is an ideal way to build wealth and take advantage of capital gains.
Investors can purchase shares of stock directly from certain companies or they can retain an investment broker to perform the task. Online research will reveal which companies allow for direct purchase of stock by the public. It will also provide a list of companies offering dividend reinvestment plans to shareholders and these plans usually require that an individual hold only one share of stock in his or her own name in order to participate.
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Dividend investing is the only way I invest, and here's why: dividend stocks create a secure, passive income, and are less risky than non-dividend investing.
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