Many first-time investors have been surprised to learn about dividend stocks during my conversations with them. Within the un-initiated there is a large cohort that believes you make money in the stock market solely buying low and selling high. They are unaware of some of the passive benefits of stock ownership.
Put simply dividend stocks are stocks that pay cash, typically on a quarterly basis, to their shareholders. This cash represents a return of investor capital and is another way to make money from stocks. These stocks are traditionally large, well established companies. The company pays dividends per share. For example if a company announces its quarterly dividend of $0.25 and an invest owns 4,000 shares they would get $1000.
Pay attention to some details. Especially when the company announces a dividend there are three dates you would want to pay attention to. The first is the record date. This is the date you must be on the record as a shareholder. The second one is the ex-dividend date. This is the first day where buyers would NOT receive the dividend. You will often see the dividend reflected in the price change on the exchanges on this day. The ex-dividend date is usually one day before the record date because of the time it takes for trades to settle. If you sell the day before the record date you will still be the shareholder on record the following day. So the person who bought the stock the day before the record date would not receive the dividend (hence ex-dividend). The third date is the payable date. This is the date the shareholder of record would receive their payment.
Dividend Stocks and Taxation
Additionally, you can benefit from tax advantages for dividends if you hold the respective dividend stocks long term. These are called qualified dividends. If you own the stock for more than 60 days within a 121-day period that starts 60 days before the securities’ ex-dividend date, the taxation of dividends will be the same as capital gains. (Please consultant a tax expert if you have any further questions.)
While dividend stocks may be an attractive choice for investors looking to build passive income they are not the only choice. Bonds and options can also offer income to investors. Before you make any investment decision, please do your own research or speak to a professional. Contact us if you have any questions or wish to inquire about opening an account. Thank you for reading!
