Dividends – This to Know, Stock & Fund Dividends Explained

Wednesday, March 19, 2008

Dividends – Things to Know

Dividends are payments that stock holders receive as a ‘share of wealth’ from companies of which stocks they are holding. Dividends are paid either as cash or as stock and will be on a quarterly or annual basis. Here are some basic things a trader must know about dividends.

Dividends are usually paid by large established successful companies. Fast growing companies often retain their profits for sustain or push the growth rate.
For receiving the dividend, the trader should hold the stock on ex-dividend date. Remember buying the stock of ex-date does not qualify you for dividends, as sellers are qualified to receive them.
On ex-dividend date, the exchange(s) on which the company stock is listed lowers the stock price according to the amount of dividend. This adjustment is easily noticeable for large company stocks trading in higher prices. This is because the amount payable for dividend now does not belong to the company, but to its shareholders.
Dividends from stocks are subjected to tax, either on normal rate or on reduced rate. Usually for qualifying for reduced rate the trader should own the stock for more than 60 consecutive days in a 121 day period.
The trader or investor is personally responsible for keeping records of all things for qualifying for dividends and paying tax. This record keeping is important when you follow strategies similar to dividend reinvestment plan (DRIP).