Dividends are a way that companies share profits with their shareholders. This can be a good thing for investors, as it means they get a regular payment from the company. Dividends are usually paid in cash, assets, or stocks. Companies might pay dividends if they make more money than they need. But how do you make sure you get your dividends? This blog will explain why companies pay dividends, important things to think about when investing in dividend stocks, and how to get your dividend payments.

Who Benefits From Dividends?

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, profits accumulated by a company over several years.

Why Are Dividends Paid?

• Availability of funds: If a company makes adequate profits, it can pay dividends to its shareholders.
• Reinvestment: Companies can reward their shareholders and reinvest additional funds into the business by paying dividends in the form of shares.
• Industry trends: Companies must keep up with prevalent trends to keep shareholders from liquidating their holdings and moving on to competitor companies. Example: In early 2023, investors were flocking towards dividend-yielding stocks due to market volatility.

Concepts To Know Before Investing In a Dividend Stock

• Dividend payout ratio: The ratio of total dividends paid to net income or total earnings, indicating how much the company is willing to give out to its shareholders compared to what it retains for its functions.
• Dividend yield: The dividends paid by a company compared to the share's price each year, reflecting the total amount of all dividends paid during the year. Example: Late in 2022, small cap company Narmada Gelatines declared an interim dividend yield of ₹100 per share due to a 32% increase in the market.

Where and How To Check Dividend Receipt?

To get your dividend payments, you need to know how they work. Instead of checking your bank account all the time, learn about receiving a dividend on your shares. Here's what you need to know:

1. Typically, companies will send a cheque with the dividend amount to eligible shareholders within a few days of the ex-dividend date.
2. Alternatively, the amount may be directly deposited into your bank account.
3. Keep in mind that sometimes a company may issue more stocks to their shareholders to reinvest the extra income in the company itself.

Important Dividend Payment Dates

To get a cash payout from a company, a shareholder needs to know some important dates:

1. Declaration Date: This is when a company tells its shareholders through a press release that dividends have been declared.
2. Record Date: When a company declares its dividends, it also sets a record date. On this day, eligible shareholders within the company's records can receive dividends.
3. Ex Date: This is the day before the record date. On this day, the share in question starts to trade ex-dividend. Anyone buying this share on the ex-date is not entitled to receive the dividend.
4. Payment Date: The actual payout occurs on this date, usually about a month after the record date. Shareholders can check their bank balances on this date. Nowadays, SMS and emails are sent out when the payment is going to be made.

Here's a quick summary to check whether you're on the right track to claim and receive your dividend.

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Conclusion

Understanding how dividends work and the processes involved in receiving them is crucial for shareholders. By knowing the vital dividend payment dates, such as the declaration date, record date, ex-date, and payment date, investors can stay informed and ensure they receive their rightful dividend payouts. Keeping an eye on the dividend payout ratio and yield can also help make informed investment decisions.

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Frequently Asked Questions

1. How do you know if you have received dividends?

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 be reflected in your primary bank account.

2. How do you track your dividends?

To track the receipt of your dividends, you can monitor the various vital dates. Now, most online trading apps also show the status of your dividends within themselves.

3. Will you get dividends if you sell them on the record date?

No, you will not be eligible for a dividend if you sell your shares on the record date. Only shareholders on the company’s record on this date will get dividends.

4. How long do you hold a particular stock to get dividends?

No lower limit exists on how long you should hold a stock to be eligible for its dividends. You need only purchase the shares at least two days before the ex-date.

5. Do stock prices go down after dividends are paid?

After the dividend gets paid out on the ex-date, the share price falls by the amount of the dividend paid out. Even when the company pays out dividends in the form of stocks, it dilutes its earnings.

6. How do you check dividend received in financial year?

Instead of repeatedly checking your bank account for your dividend payout, you must become well-versed in the technicalities of receiving a dividend on your shares.

1. Typically, companies send a cheque with the dividend amount to eligible shareholders within a few days of the ex-dividend date.

2. Now, the amount is directly deposited in your bank account.

3. However, sometimes a company may issue more stocks to their shareholders to reinvest the extra income in the company itself.

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