How to Make Money from Dividend Stocks

Dividends are one of the ways to earn money from stocks when investing in companies that pay dividends.

What are Dividends?

Dividends are the profits that a company distributes to its shareholders. Companies do not do this out of goodwill; they aim to earn money for their owners.

Typically, dividends do not represent all of the company’s profits. The company retains a portion of the profits for future use, such as acquiring other companies or paying off debts, for example.

Companies that pay cash dividends are the most well-known, although you may sometimes hear of cases where the company uses stock instead. Many investors are attracted to stocks that have a good history of paying dividends. These companies are usually stable and profitable but may not offer much growth opportunity.

How are Dividends Determined?

The company’s board of directors determines dividends at a quarterly meeting. It is important to note that there is no obligation to pay dividends. If the company is suffering financially, or if the board is concerned about the future, it may decide to forego the dividend distribution.

The board sets the dividend rate on a per-share basis. For example, the board may announce a quarterly dividend of $0.50 per share. This means that if you have 100 shares of stock, you will receive a check for $50 for that quarter.

Important Dates for Dividends

There are four important dates to remember regarding dividends:

• Announcement Date: This is the date the board determines the dividend and announces when shareholders will receive their checks. The board also announces the ex-dividend date, which is a very important date to know.
• Record Date: This is the date the company establishes the list of shareholders who will receive the dividends. You must own the stock before this date to receive the dividends; however, the ex-dividend date is the most critical.
• Ex-Dividend Date: This date usually falls 2-4 days before the record date. This date allows for the completion of all pending transactions since it typically takes three days to settle a sale of common stock. The ex-dividend date is the most crucial day regarding stock ownership if you wish to receive the dividends. On the ex-dividend date, the market reduces the stock price as the dividend is no longer available to buyers.
• Payment Date: This is the date the company sends out the checks, usually about two weeks after the record date.

Types of Dividends

Dividends come in two types: fixed and variable. Fixed dividends go to preferred shareholders, while variable dividends go to common shareholders.

Dividends provide an additional way for investors to earn money, especially if the aim is current income. Many investors find buying and holding companies with a solid history of paying dividends to be a good option for achieving financial goals.

Companies that pay dividends and consistently generate stable profits are most likely to offer stability in their dividend payments. This stability helps in planning for expected income.

You can find dividend data on investment sites like CNBC, Morningstar, Yahoo Finance, and Investopedia.

Source: https://www.thebalancemoney.com/making-money-with-dividends-3141373