This is where the ex-div date comes in. In order to be entitled to the upcoming dividend you would need to have owned or bought Apple shares before Aug. To summarize: A company's board declares a dividend, to be paid on a certain date to shareholders of record as of a prior date. In order to be one of those shareholders of record, you need to buy or already own shares before the ex-div date, which is the business day before the record date. In the vast majority of cases, dividends are paid in cash by the company to your brokerage, which puts the money in your account.
Some companies offer direct stock investment plans, but with low-cost -- in many cases zero-commission -- trading available from most online brokers, there's minimal benefit to using this option these days. As to the when , the dividends show up in your brokerage account on or within a few days of the payment date, depending on your broker.
If you're counting on those dividends for income , it might take a few more days to transfer that cash out of your brokerage account and into your banking accounts , so factor the additional time in for budgeting purposes.
There are also some stocks that don't pay in cash, instead paying in more shares of a company's stock. This is rare, but it does happen, so make sure you verify whether you're getting a cash or stock dividend. Generally companies make it clear if the dividend is not being paid in cash. Again, if you want cash -- either as dividend income or to invest in other stocks -- a stock dividend means it will take a little longer to get your hands on actual money.
You'll have to sell the shares, then wait for the trade to settle -- several more business days -- before your broker will let you take the cash out of your account. Discounted offers are only available to new members. High dividend yield stocks are good investment options during volatile times, as these companies offer good payoff options. They are suitable for risk-averse investors. The caveat is, investors need to check the valuation as well as the dividend-paying track record of the company.
Companies with high dividend yield normally do not keep a substantial portion of profits as retained earnings. Their stocks are called income stocks. This is in contrast to growth stocks, where the companies retain a major portion of the profit in the form of retained earnings and invest that to grow the business.
Dividends in the hands of investors are tax-free and, hence, investing in high dividend yield stocks creates an efficient tax-saving asset. Investors also take recourse to dividend stripping for tax saving. In this process, investors buy stocks just before dividend is declared and sell them after the payout. By doing so, they earn tax-free dividends. Normally, the share price gets reduced after the dividend is paid out.
By selling the share after the dividend payout, investors incur capital loss and then set off that against capital gains.
Definition: Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any other form. However, it is not obligatory for a company to pay dividend. Dividend is usually a part of the profit that the company shares with its shareholders. Description: After paying its creditors, a company can use part or whole of the residual profits to reward its shareholders as dividends.
However, when firms face cash shortage or when it needs cash for reinvestments, it can also skip paying dividends. When a company announces dividend, it also fixes a record date and all shareholders who are registered as of that date become eligible to get dividend payout in proportion to their shareholding.
The company usually mails the cheques to shareholders within in a week or so. Stocks are normally bought or sold with dividend until two business days ahead of the record date and then they turn ex-dividend. Dividends are always considered taxable income by the Internal Revenue System IRS regardless of the form in which they are paid. If a dividend is declared, all qualified shareholders of the company are notified via a press release; the information is usually reported through major stock quoting services for easy reference.
The key dates that an investor should look for are:. On the payment date, the company deposits the funds for disbursement to shareholders with the Depository Trust Company DTC.
Cash payments are then disbursed by the DTC to brokerage firms around the world where shareholders hold the company's shares. The recipient firms appropriately apply cash dividends to client accounts, or process reinvestment transactions, as per a client's instructions. Tax implications for the dividend payments vary depending on the type of dividend declared, account type where the shareholder owns the shares, and how long the shareholder has owned the shares.
Dividend payments are summarized for each tax year on Form DIV for tax purposes. Once a dividend is declared on the declaration date, the company has a legal responsibility to pay it.
A dividend reinvestment plan DRIP offers a number of advantages to investors. If the investor prefers to simply add to their current equity holdings with any additional funds from dividend payments, automatic dividend reinvestment simplifies this process as opposed to receiving the dividend payment in cash and then using the cash to purchase additional shares.
Company-operated DRIPs are usually commission-free, since they bypass using a broker. This feature is particularly appealing to small investors since commission fees are proportionately larger for smaller purchases of stock. Another potential benefit of DRIPs is that some companies offer stockholders the option to purchase additional shares in cash at a discount. Dividends are a way for companies to distribute profits to shareholders, but not all companies pay dividends.
Some companies decide to retain their earnings to re-invest for growth opportunities instead. If dividends are paid, a company will declare the amount of the dividend, and all holders of the stock by the ex-date will be paid accordingly on the subsequent payment date.
Investors who receive dividends may decide to keep them as cash or reinvest them in order to accumulate more shares. With dividend reinvestment, you start a cycle of continuously buying more shares, which results in the ability to get a higher dividend payment next time, which in turn gives you the potential to buy more shares. Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years.
Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
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