Description
This article is from the Investing Articles:
Stocks and Options series.
Understanding Stock Dividends
A dividend's yield -- the
percentage of return earned strictly from dividends -- is equal
to total dividends paid in the last 12 months divided by the
current stock price. So if a stock is trading at $20 per share and
has paid a 25 cent dividend for each of the past four quarters,
its yield is $1 divided by $20, or 5 percent.
Companies pay dividends as
a demonstration of financial health and as a way of increasing
shareholder allegiance. However, not all companies pay dividends.
Many firms keep their earnings and reinvest them in the business,
reasoning that they can increase shareholder value more rapidly by
fueling growth than by handing out cash. Firms opposed to
dividends also argue that retaining earnings is a more
tax-efficient strategy, since dividends are taxed as ordinary
income, while any growth fueled by reinvesting earnings is
generally taxed at more favorable long-term capital gains rates.
Cash Dividends
A corporation's board of director's is
responsible for declaring a cash dividend. Once a dividend has been
declared, a 'date of record' or 'record date' is established. The
'record date' means that stockholders on record on or before that date
are entitled to the dividend. Anyone buying the stock after that date
must wait until the next dividend is declared to receive a dividend.
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day trading, stock dividents, interest rates, preferred stock, short sale, stock warrants, futures, options, volatility, calls, puts, covered calls, financial information, investing, investment tools, reference
