Stocks are not only a way to invest and reap future dividends but can also be an income-generating tool. Dividends are paid out either in the form of cash, assets or stocks. Many companies may choose to pay dividends to their shareholders in case they make excess earnings. But how can we check if dividends are received? We’ll cover this as we go on.
The beneficiaries of such shares are preferred shareholders and equity shareholders. Preferred shareholders are entitled to a certain amount each quarter. Equity shareholders, on the other hand, can only get special dividends that are profits accumulated by a company over a number of years.
The reasons why a company chooses to pay dividends are many. Here we discuss some of the reasons why dividends are paid –
If the company has made adequate profits, it can pay out dividends to its shareholders.
By paying dividends in the form of shares, the company can not only reward its shareholders but also reinvest additional funds back in the business.
If the company’s peers have been regularly paying dividends, then it must also keep up with the prevalent trends so as to keep shareholders from liquidating their holdings and moving on to competitor companies.
While identifying and investing in individual companies requires meticulous research on part of the shareholder, there are a few things to keep in mind when looking at these different companies. Here, we discuss two important metrics impacted by dividends –
A company’s dividend payout ratio is the total amount of dividends in proportion to its net income, or the percentage of total earnings that are paid as dividends. A dividend payout ratio reflects how much the company is willing to give out to its shareholders compared to what it retains for its functions. A company’s maturity, growth, expansion plans and debt determine whether dividends are paid out.
A company's dividend yield reflects the dividends paid by a company compared to the share's price each year. You must consider a sum total of all the dividends paid during the year. In fact, this information can be retrieved from the cash flow statement of the company for the relevant financial year.
Instead of repeatedly checking their bank accounts for their dividend payout, shareholders must become well-versed with the technicalities of receiving a dividend on their shares. Typically, companies would send a cheque with the dividend amount to eligible shareholders within a few days of the ex-dividend date. Now, the amount is directly deposited in the bank account. However, sometimes a company may issue more stocks to their shareholders as a way to reinvest the extra income in the company itself.
In case the company chooses to pay out cash, it is important for a shareholder to know the important dates associated with the payment of dividends. Here’s how to check dividend received by keeping in mind the most important dividend payment dates –
The date on which a company notifies its shareholders via a press release that dividends have been declared.
When a company declares its dividends, it also sets a record date. All eligible shareholders on their records on that date are entitled to receive dividends.
Ex-date is the day before the record date. On this day, the share in question starts to trade ex-dividend. Basically, anyone buying this share on the ex-date is not entitled to receiving the dividend.
The payment date, or the date on which the actual payout occurs, is usually one month after the record date. Shareholders who are expecting a dividend payout can check their bank balances on this date. These days, SMS and emails are also sent out when the payment is going to be made.
If you have invested in a dividend-paying stock, it is important to remember all the relevant dates that determine your eligibility for receiving the dividends. The bottom line is, to be able to receive dividends on your shareholding, you must have invested in the stocks at least two days before the ex-date declared by the company. Knowledge of these dates means that you need not keep checking your bank account to know whether you received your dividend payout, but can expect the payment on the designated date itself.
You will receive the dividends allotted on your shares on the payment date. This date occurs about a month after the record date. The amount will reflect in your primary bank account.
You can track the receipt of your dividends by monitoring the various important dates. Now, most online trading apps also show the status of your dividends within the app itself.
No, you will not be eligible for a dividend if you sell your shares on the record date because only shareholders who are on the company’s record on this date will be given dividends.
There is no lower limit on the time for which you should hold a stock to be eligible for dividends. You need only purchase the shares at least two days before the ex-date.
After the dividend is paid out on the ex-date, the price of the share falls by the amount of the dividend that has been paid out. Even when the company pays out dividends in the form of stocks, it dilutes the company’s earnings.