Dividend Stocks

When a Corporation?s Board of Directors decides to pay over profits or part of them as dividends, all its common shares have the right to receive them. If the board decides not to declare a distribution of dividends, shareholders receive nothing.

Companies are not legally forced to pay dividends, even when profiting, not mattering if they have done it in the past.

In contrast, companies are legally forced to pay interests to bondholders. This is an important distinction for people that depend of a regular income from their investments.

Declaration of Dividends
If receiving dividends is important for you, you should take into account these four dates:

  • Date of declaration is the date on which the Board of Directors declares the dividends.
  • Date of record is the date in which it is determined which shareholders have the right to receive dividends. Only the shareholders that own company shares up to that date have the right to receive dividends. If the shares are purchased after the record date owners of these will not have the right to receive the proposed dividends.
  • Ex-dividend date are two-negotiating dates before the date of record. Negotiated stocks in the ex-dividend date do not include the dividends to be delivered.
  • When common stocks are bought transaction takes three-negotiating dates in being completed. That is why if the record date to establish a company’s dividends is a Friday; the ex-dividend is the preceding  Wednesday.
  • Investors that purchase such shares on Tuesday (the day before the ex-dividend date) receives the dividends because the transaction is recorded in the ownership sites for that company in three working days.
  • Payment date is the date on which the company pays the dividends.

Companies generally mention their dividend policies to the public. This because investors use such dividend payments in a proper or wrong way as a measure or mirror of profits expected by the companies. Changes in the dividend payments can cause major effects in stock prices than in a change in profits

 This phenomena explains the unwillingness of administrations to null dividends when there is a fall in their profits. Equally, a delay in increasing dividends could occur when profits are increased due to the managing members that want to be sure they can back up any increase in dividends.

Shareholders that count with incomes coming from investments generally purchase stocks from companies that have a background of paying dividends over their profits regularly.

These companies tend to be older and more solid. Their stocks are referred to as income stocks or Blue-chip stocks. Younger companies in expansion usually retain their profits; their stock is referred to as Growth stocks. These stocks are looked for by investors interested in capital appraisal.