A dividend is the distribution of profit from company earnings that is allocated to some of its shareholders. The shareholder that receives the dividends is always decided upon by the board of directors of the company.
Common shareholders that receive dividends from companies are usually eligible, providing they own the stock before the ex-dividend date. These earnings must be distributed either as cash or in the form of additional stock.
Why Do Companies Pay Dividends?
Companies pay dividends to attract new investors, as well as retain their current ones. Being able to pay dividends sends a powerful message about the company’s future performance. The ability to pay steady dividends over time shows a solid demonstration of financial strength and is appealing to investors.
How are Stock Dividends Paid?
Stock dividends usually work via a standard practice. This practice for the payment of a dividend is presented via a check that is mailed to stockholders. The check is usually mailed around a few days after the ex-dividend date. This is the date on which you need to own a dividend paying stock to be eligible to receive the dividend. An additional way to pay dividends is presented in the form of addtional shares of the stock.
Why are Dividends Good For Shareholders?
Dividends are great for shareholders, as this is one way they can earn a passive income from an investment without having to sell their own shares. A company that’s able to pay out regular dividends communicates strength and sustainability to shareholders.
Generally, mature companies pay regular dividends while newer companies prefer to reinvest money earned toward growth. High dividend payouts confirms the company’s financial well-being. This is beneficial to shareholders, as a company that pays dividends is attractive to them, as it builds demand for stock.