Favorite of Experienced Investors: Dividend Investing

The dividend is the distribution of dividends to the shareholders of the company in proportion to their partnership shares. It can be distributed from the net profit determined according to the annual balance sheet or from the reserves set aside for this. 

What is a dividend and what are high dividend stocks are among the topics that investors are curious about. Because when investing in dividend stocks, your only profit will not be on the value increase in the stock you invest. You can also earn dividend income. For this, it is necessary to examine what are the stocks that give good dividends. So what is a dividend?
 

What is a Dividend?

The shareholders of the company have the right to receive a share of the profits of the business within a period. These rights are called dividends. The dividend amount is determined by the ratio of the shares owned by the partners. When you buy stocks while trading on the stock market, you become a shareholder of the company at a certain rate. Therefore, when the company distributes dividends, it can give you dividends accordingly. Companies listed on the stock exchange are not required to distribute dividends. However, distributing profits will increase the demand for the shares, thus increasing the value of the stock.

Dividend Calculation

While calculating dividends, stocks are measured with nominal value. Since this value is stated as $1 in the stock market, this should also be taken into account in the calculations. For example, if company A has announced that it will pay a 40 percent dividend, and you have 100 shares of this company in your hand. In this case, you will receive  $0.4 dividend for your $1. Assuming you have 100 shares, the dividend you will receive will be $40. In this way, you can calculate your dividend.

How Is Dividend Given?

Dividends can be given in two different ways: By cash or as stock. Giving dividends is a matter related to the management of companies. The company may increase its capital instead of distributing profits. Dividends distributed as stocks are the situation encountered when the company goes for a bonus issue. The investor can raise the share ratio instead of getting a profit. In order to distribute dividends, the company's profit during the year must be taxed, etc. must be 20% or more after deductions.

Best Dividend Stocks

Generally speaking, there are two main types of stocks, growth stocks, and value stocks. Growth stocks generally prefer to retain earnings and use them to reinvest in the rapidly growing business, while value stocks refer to more mature companies that may have reached a plateau in their growth curve. Value stocks may be more likely to pay dividends because, despite a possible dominance in the market, growth opportunities may then be constrained and the most efficient use of capital would be to distribute it to shareholders rather than reinvest it. Shareholders can then use their discretion on how they want to invest or spend the dividend payout. While paying dividends may seem like a logical concept, it comes with a fair share of risk. Once a company has committed to paying dividends, it can be very difficult to return. When companies experience weak earnings, they may have to reduce or scrap their dividends. This could send a very negative signal to the market and have a potentially disastrous effect on the share price if enough worried investors sell. 

Things to Consider in Dividend Investing

There are a number of key fundamental factors and market rates that investors should consider before investing in high dividend stocks. Use important factors to consider, such as dividend yield, P/E ratio, payout ratio, and dividend growth. Investors consider several methods when researching how to value a stock. One such method is the dividend discount model, which estimates future dividends and discounts them to arrive at present value. Therefore, when there is less of a dividend to be received, the market will price it in, resulting in a drop in share price roughly equal to the dividend per share. Investors receiving services from [Brand Name] are constantly informed about such factors. You can also invest in high dividend stocks with FairMarkets.