When you invest in the stock market and become part of your chosen company’s continuing growth, you will earn mainly in two ways: through capital or price appreciation and through dividends.
Capital or price appreciation is an increase in the market price of your stock over time brought about by an increase in its potential value and the demand to buy its shares. The faster a company can grow, the faster its price can appreciate.
Profitable corporations can also issue dividends, whether in cash (cash dividend) or in additional shares of stock (stock/rights dividend) as a means for shareholders to share in their distributed profits.
Dividends are given by top companies whenever they earn significant profits from their business in a particular period. The owners of these companies can decide whether to keep all their earnings and re-invest it in their business (retained earnings), or give a portion of the earnings to its shareholder members in the form of dividends.
Again, if you buy shares of a certain company, then you are a shareholder. And you are entitled to receive dividends if the company you are invested in declares that they will distribute so on a particular date directly credited to your portfolio.
*Cash dividends will be credited to your portfolio cash balance/buying power/portfolio wallet.
**Stock dividends will be in the form of additional shares of that company you are holding.
Regular and Special Dividends
Usually, dividends are paid out on a regular basis. This could be on a quarterly, semi-annually, or a yearly basis.
Special dividends are those that are given not on a typical recurring time as the regular dividends. This happens when a certain company earns more than they expect in a particular period and they want to share a piece of that “extra” pie to their shareholders.
Rates of these dividends vary per year/period and per company.
The Dividend Dates
A lot of new investors are asking about these important dates that they usually encounter when their broker announces that a company will be giving out dividends to its shareholders.
The Board of Directors of companies must always approve any decision to pay dividends. A process is basically followed through these four common dates:
1) Declaration Date – This is the day that the Board of Directors announces their intention to pay dividends to shareholders. During this date, the ex-dividend date, record date, and payment date will also be announced. This is usually a month before the ex-dividend date.
2) Ex-Date or Ex-Dividend Date – This date is like the “boundary” to identify those entitled to receive dividends. If you buy the shares of a company on an announced Ex-dividend date, then you are no longer entitled to receive such dividends. You have to remember that in order to receive the dividends, you have to buy the share of that company at least one day before the ex-dividend date.
3) Record Date – Companies need some time to record and reconcile the list of shareholders who will receive the dividends. Usually, the record date is set at three days or more after the Ex-Date. You can actually sell your shares (position) between the Ex-date and the Record date and still be entitled to dividends from that company. But as a long-term investor, why would you sell soon?
4) Payment date – This is the date when investors owning such stocks celebrate because the dividends are actually paid to them. Shareholders may either redeem the cash dividends or use them to buy more shares.
Dividends To Watch Out For in the Coming Weeks!
Now, I hope you understood those dates by now and are ready to receive your extra blessings for deciding to invest in the stock market.
You can always visit the website of the Philippine Stock Exchange to check what companies are declaring dividends in the coming weeks and months by clicking on the Listings and Disclosures page and select Dividends/Rights tab.
How To Calculate Your Dividends
It’s pretty simple.
For example, Meralco (MER) has declared to give its shareholders who invested in them on Ex-Date March 21, 2013 cash dividends worth P6.10 per share to be paid on April 24, 2013.
Let us assume you already have 1,000 shares in your investment portfolio, your total dividends receivable by April 24, 2013 would be P6,100 (P6.10 x 1,000 shares). Of course, you need to deduct 10% withholding tax from P6,100 to have the final dividend amount of P5,490. Awesome!
Share your blessings. Pay forward what you have learned. Never get tired of learning new things. Hard work and smart work pay dividends. 😉
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