What are Dividend Stocks?

Published by Thomas Herold in Economics, Investments, Trading

'Dividend Stocks' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Dividend Stocks refer to stocks that pay especially generous and predictable shares of the corporate earnings out to their share holders. They are especially important for those investors who require dependable continuous streams of income off of their investment portfolios, such as retirees. This is why the optimal stock portfolio for those who are officially retired includes a strong and diverse mixture of industry-leading corporations which provide consistent, generous dividend yields.

These Dividend Stocks are famous for paying out significant stock dividends as a distribution on their earnings. They may pay this in the form of additional shares or as cash, depending on the wishes of the share holder in question. Sometimes the company will declare a stock dividend instead of a cash dividend, removing the ability of the shareholder to choose the form in which the dividend actually pays. When dividends become payable strictly as more stock, they are also known as stock splits.

For the companies that declare regular cash dividends of these Dividend Stocks, with each share stake holders have, they receive a set portion of the earnings from the corporation. This is literally being paid for simply owning the stock shares.

Consider a real world example to better understand how these Dividend Stocks work out in practice. Gillette, the world famous market leader in the shaving razors industry, may pay a dividend of $4 on an annual basis. Typically these dividends will be paid practically on a quarterly basis. This means four times each year Gillette would provide a $1 payout for each share of stock which the stake holders possess. If an investor owned 100 shares, he or she would receive four checks per year of $100 each check at approximately the conclusion of each quarter.

Most dividends from these Dividend Stocks come out in cash. Investors have the option to have them reinvested into additional company stock shares. Sometimes the corporation will provide a more advantageous reinvestment price than the current market prices to encourage such reinvesting of dividends in the company stock. These plans are called DRIPS (Dividend Re Investment Plans).

There are also occasional special dividends offered on an only one-time basis. They could be provided if the company wins a large and lucrative lawsuit, liquidates its share of an investment and receives a windfall payout, or sells part of the business to another firm for cash. These dividends can be made in cash, property, or stock share dividends.

There are several important dates with which Dividend Stocks’ investors need to be familiar. These are declaration date, date of record, ex-dividend date, and payment date. Declaration date is the calendar day when the company’s Board of Directors announces a dividend payout. This is the point where the firm adds a liability for the dividend payout to its company books. This means that it owes money (or shares) to the stake holders. This date will be the one when they announce both the date of record as well as the dividend payment date.

The date of record is the one where the corporation will review the appropriate records to determine who is holding the shares and is thus eligible for the dividends. Only holders of record will receive the dividend payment. The ex-dividend date is the day after which any investors who wish to receive dividends must own the shares. Only stake holders who possess shares on the day before the ex-dividend date get paid. Finally dividends are literally doled out on the payment date.

While most stock companies will pay out dividends on either a quarterly or half yearly basis, real estate investment trusts are structured differently. They pay out their dividends on an every-month basis as they receive monthly income from their various commercial, industrial, and/or residential properties.

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The term 'Dividend Stocks' is included in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.