Money paid directly to an investor in a company’s stock is referred to as a dividend. Dividend is offered by some publicly owned companies with their stock, while others do not. It is up to the individual investor that whether he choice to buy and own a stock that pays a dividend, as there are both positive and negative aspects to consider.
Dividend is good for both company and individual investor
When a dividend is offered by a company to its stock holders, then it is taking money that could be reinvested into the company, and it distributes it to shareholders as a benefit of investing in the company. For investors receiving a dividend is good, due to the reason that in the form of the money from the dividend they get a guaranteed return on their investment.
Investment in companies that do not offer dividend
Some investors do not invest in a company that offer dividend as a company that gives its investor a dividend is not using that money for expanding the business. Therefore, a stock that gives a dividend may be less likely to grow in value, or it may grow at a slower rate as compared to a company that does not offer a dividend, but instead of offering dividend it uses its profits for expanding or seeking out new business opportunities.
What you will get in dividend?
The dividend that is offered by a company to its shareholders is usually paid out each quarter. For each share of stock owned the amount of dividend is set at a certain dollar value . If you own 100 shares of a stock which pays 1 US dollar (USD) per share each year in dividend, then every three months you will receive 25 USD in dividend . These quarterly payments of 25 USD constitutes the annual dividend 100 USD. Most companies by which dividend is paid also have a dividend reinvestment program.
Dividend Reinvestment Program
With a dividend reinvestment program, the investor instead of taking the dividends as payment can choose to reinvest each dividend payment and then instead of cash they take the value of the dividend in stock . In this case, the value of the investor’s stock would increase by 25 USD the first quarter. Because the value of the stock is now higher than before, so for the next quarter the dividend would actually be higher than 25 USD, which is based on the number of additional shares that the first dividend was able to purchase. An investor can easily increase his or her stock holdings by reinvesting dividends.
Depending on your investment needs, a stock by which a dividend is offered can be a profitable long-term investment.
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Posted by R. MAK. in Stock Trading · 0 Comment
