Dividends are one of the many key components of investing, representing a share of a company's profits distributed to its shareholders. While companies are not required by law to pay dividends, understanding this financial concept can be crucial for investors seeking steady income streams, as having dividend rights is one of the perks of being a shareholder.
Do all companies pay dividends?
Not all companies pay dividends. Some prefer to reinvest profits into the business, focusing on growth and expansion rather than distributing earnings to shareholders. Tech startups and high-growth companies commonly fall into this category.
Frequency of dividend payments
Dividends are typically paid on a regular basis, with the most common intervals being quarterly. However, companies may also distribute dividends annually or monthly. A special dividend (also known as an extraordinary dividend/irregular dividend) is a one-time payment that a company can declare due to various reasons. The decision on dividend frequency is influenced by a company's financial health, stability, and management strategy.
Timing of dividend payments
Once a dividend is declared, investors can anticipate receiving payments if the shares they own are bought before or on the last date to trade (LDT), but not on or after the ex-dividend date (ex-dividend). The actual payment date follows shortly after and is determined by the company's board of directors.
It’s worth noting that delayed payments occasionally occur when the company paying dividends is of a foreign country, paying in a foreign currency, and not that of the stock market.
How can investors use dividends?
Investors have various options for using their dividend earnings. This can include the following:
- Cash the money out for personal use
- Reinvest automatically in the same company that pays dividends
- Diversify by manually investing in different investment assets
Unlocking additional benefits
Understanding dividends empowers investors to make informed decisions about their portfolios. Whether reinvesting for compound growth, diversifying into different assets, or exploring additional benefits, investors could maximize the potential of their dividend earnings and take their financial journey to new heights.
Learn more about dividends and the important dates to consider by clicking here.
