The word dividend has come to mean cash that is distributed from earnings. Usually, any direct payment from the corporation to the shareholders will be deemed to be a dividend. In other words, a dividend is an amount of money distributed by the company to the shareholders. The amount of the dividend payout is determined by shares (e.g. a $1 dividend payout means $1 per share so if you have 100 shares, you will receive $100). The dividend is paid with after tax money from the company’s account. Therefore, the firm must pay all his financial obligations (including tax on benefits) and decide to pay a dividend with the remaining.

The three types of dividends include:

1.      Regular cash dividends.

2.      Extra dividends.

3.      Liquidating dividends.

The most common type of all of these dividends is the regular cash dividend. These are simply cash payments made to the shareholders of the company. The investor will receive the money in their stock trading account usually on a quarterly basis.

Who decides on a dividend?

The board of directors in the corporation holds the power when it comes to deciding on a dividend policy or just dividend payment in general. The thought process is unique depending on the company and its current earnings/future stability. An important point to consider is that dividend payout is not an obligation. Therefore, at anytime, a company can decided to cut or hold their dividend payout.

How does a dividend work?

As previously mentioned, the amount of the cash dividend is commonly indicated in dollars per share. The amount of money you receive depends on how many shares you own. Dividends are either deposit in cash in your investment account or used to buy more units/shares (under DRIP plan)

What to consider about dividends?

We must also remember that companies that offer a dividend tend to be well-established and stable. This means that there may not always be as much growth in terms of stock appreciation. This is less risky that investing in a company that’s trying to grow from a lower starting point. You can also look at Dividend Champions which have been paying steady and increasing dividend for several years.

The positive side of dividends is that investors are guaranteed a steady source of income. You know that when the company pays a dividend (typically quarterly) you’ll receive a bit of money. This provides a sense of security when it comes to the stock prices and market swings that may occur as you own the stock.

There are several factors that influence dividend investing:

Dividend Payout Ratio

Dividend Yield

Dividend Increase or Cut

Ex Dividend Date

Dividend Taxation Treatment

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