A guide to dividend investment

Dividend investing is a great way to generate a stable income and grow your investment portfolio. Investing a small amount in an established company will help you get increased return dividends with the passing of time. All the dividend stock companies tend to be more stable and mature when compared to other non-dividend paying counterparts. The dividend companies have strong bases, thus they are able to provide greater dividend over a long period of time. Why do all stocks not pay dividends? All the fast-growing and newer companies utilize their profits for reinvesting in their business. As a result, small companies are unable to pay dividends. Whereas, big and established companies can generate enough money as it does not need to be reinvested for the growth of the company. This excess money is then distributed to the shareholders. Thus, they are able to pay profit dividends to the shareholders. Return yield is not important Anyone who is interested in dividend investing would understand that yield is not important while selecting companies to invest in. There are several other factors such as payout ratio, total return, P/E ratio, and EPS growth that any investors should give preferences while selecting any companies. There many companies in the stock market which don’t have high dividend ratio, but for the last 20 to 30 years their dividends are constantly growing. Dividend growth and consistency are very important factors for any long term stock investors. Important dates related to dividend pay-out It is very important for every dividend investor to remember some of the dates. These dates will help you determine the exact date for your dividend payment.

  • Trade date This refers to the date when the investor is buying the dividend stocks.
  • Settlement date This date is when your stocks are approved and you finally become a shareholder of record of the company. The settlement date is scheduled after 3 working dates from the trade date.
  • Ex-dividend date On this day, the stock is traded without any of its dividends for the first time.
  • Record date Two working days after the ex-dividend date is termed as the record date. On this date, the company determines which shareholders are getting their dividends and who is not.
  • Pay Date On this date, your dividend is paid by the company.

What should you do with your dividends? New investors are advised to reinvest their dividends to increase the overall returns. Investors can use the dividend reinvestment schemes or DRIP, which allows the investor to reinvest dividends without any commission fees. This can be done automatically. As time goes, the capital gets reinvested and dividend pay-out also increases. Reinvesting through DRIP can increase your wealth over a long period of time. Your focus, while selecting company stocks for dividend investing, should be on the total sum of return investment. So, before investing in any stocks, keep the key points in mind and carefully select the stocks that are giving high yet consistent pay-out.

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