Don't Buy A Dividend Stock Unless You Know These 10 Things...
There aren't many things you can buy that automatically give you yourback.
Think about it: When was the last time your car wrote you a check?
Has the gas station ever sent you?
What about the shoe store?
Dividend stocks are stocks of companies that give a portion of their quarterly profits back to shareholders, and this is very attractive to investors who want a stream ofthat doesn't involve working for The Man. Not all dividend stocks are created equally, though.
There are a few terms you need to know before you buy yourself one of these gifts that keep on giving. You can find these and more in our Financial Dictionary, with its thousands of easy-to-understand terms.
A qualified dividend is a dividend eligible for capital gains tax.. Capital gains taxes are usually lower than , which means that qualified dividends can save you . An ordinary dividend is a dividend that is not eligible for
In order to be a qualified dividend, the dividend must come from an American company (or a qualifying foreign company), must not be listed as an unqualified dividend with the holding period is at least 60 days for , 90 days for , and 60 days for a dividend-paying ., and must meet a required . In general, the
A cumulative dividend is a dividend, usually on Preferred stock that doesn't carry a cumulative dividend is called "straight preferred." Cumulative preferred often has slightly higher than straight preferred because cumulative preferred carries the risk of not receiving regular dividends., that must be paid before any other dividends on the 's other securities.
For example, let's assume Company XYZ common stock with a $0.50-per- dividend.preferred stock with a $1-per- cumulative quarterly dividend. Company XYZ also has
Now let's assume Company XYZ's preferred shares have a cumulative dividend, once Company XYZ resumes its dividend distributions, it must first "catch up" on the missed dividends payments to the cumulative preferred before it pays dividends to the common stock. It must do this even if it does not completely suspend the preferred dividends; reducing them creates a similar .takes a hit and the board suspends dividend payments. Because the
Dividends don't always come in; sometimes they're in the form of more .
For the company, stock dividends are a way to avoid using, and for the investor they are a like doubling down on an . It is important to , however, that stock dividends increase the number of , which can affect per . Most dividends are quarterly, but stock dividends are generally paid at infrequent intervals.
Dividend yield is a's dividend as a percentage of the price:
Dividend Yield = Annual Dividend / CurrentPrice
Note the inverse relationship: If theprice rises, the goes down, and vice versa.
Dividend yields measure an’s , and some even view it like an interest rate earned on an . They can also signal when to sell an . For example, if Company XYZ rises and its dividend yield falls to, say, 2%, you might consider selling the and reinvesting the in another with a 10% , which would increase your annual dividend .
Here's generally how a dividend is born. First, thereviews the company's financial performance and availability and decides to declare a dividend (usually via press release). The day they declare the dividend is called the declaration date. The declaration also state that only shareholders who own the on a particular date (the record date) receive the dividend.
After the company sets the record date, theexchanges or the National Association of Securities Dealers (NASD) assign the ex-dividend date (typically two business days before the record date). On the ex-dividend date, the price declines by the value of the dividend paid. The payable date is the date on which a company actually pays the dividend.
Many people love the efficiency of automation, even when it comes to some forms of. One of the best examples is participation in a dividend reinvestment plan (DRIP), which allows investors to automatically use a company's dividends to buy more of the company's , often at a discounted price. For instance, a $1.00 dividend payment buy you a quarter of a of a $4.00 .
DRIPs were originally company-sponsored programs for employees, but today, hundreds of companiesDRIP plans to anyone, and they're a great way to turn a few dividend-paying into a of dividend-paying without much effort.
For example, instead of buying a and waiting all for four quarterly dividend payments, the investor would buy the before its ex-dividend date and sell it 61 days later. Then he would plow the into another company that is about to pay a sizable dividend. Assuming a 61-day holding period, this investor would pocket six dividends during the (365 days divided by 61 equals 6) instead of four -- that's 50% more dividends from the same dollars!
The investor relations section of the 's website and even in its 10-Q or 10-K (usually near the end). Also, be sure to sign up for press release alerts from your favorite companies--then you'll find out what's happening with a dividend when the rest of does.Answer: Dividend stocks are indeed a gift that keeps on giving, but always understand what kind of dividend you're receiving and don't stop looking at your just because they pay dividends. You can always ask your or about the ins and outs of a particular 's dividends, but if you want it straight from the horse's mouth, you can find everything you need to know about a company's dividend on the
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