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Whether you’re just beginning to invest in the stock market or you’ve been at it a while, there’s always plenty more to learn. For example, even experienced investors might wonder, “Do all stocks pay dividends?” The short, simple answer is no. But of course, there’s a lot more to it than that.
To truly understand why some stocks pay dividends and some don’t, you first need to know what they are and how they work.
Dividends are payments made to investors in a particular stock. The payment is made when a stock price goes up, resulting in a profit. The stockholders receive a share of the profits based on how much stock they own. Savvy investors can earn a good living on dividends alone if they continue to invest wisely.
Dividends are regular payments of profit made to investors who own a company’s stock. Not all stocks pay dividends. Companies that do issue dividends do so to encourage investors to buy the company’s stock.
Dividend payments following good earnings are a sign of the company’s current and strong future growth. This makes investors even more likely to purchase stock.
Consider this common example of how dividends work. You own 100 shares of stock in a company. The company pays $5 per share in annual cash dividends. That means you receive $500 a year.
But it isn’t always as simple as that. There are actually several types of dividends a company might pay to stockholders. The above example mentioned a cash dividend. This is the most common type of dividend. Cash dividend payments deposit directly into a brokerage account owned by the shareholder.
Stock dividends are another common type of dividend. Instead of receiving cash payments, shareholders receive additional shares of stock.
Less common dividends include special dividends, which is a single payout made to distribute a few years’ worth of profits. And preferred dividends are made to investors in a preferred stock. This is a type of stock that is more akin to a bond. Payments are made quarterly and are usually a fixed amount.
Most companies in the United States will pay dividends on a quarterly basis. However, some may choose to pay semiannually or even monthly. But before they are paid, a board of directors must approve them. The board will determine the payment date, as well as the payment amount, and the ex-dividend date.
The ex-dividend date refers to the date that investors must have owned the stock in order to receive the payment. If any stock was purchased after the ex-dividend date, investors are not eligible to receive the dividend. However, they are allowed to sell the stock after the date without penalty.
Now that you know the answer to the question, “Do all stocks pay dividends?” it’s time to ask the next question. “Which stocks do pay dividends?” There are several ways to find out. The internet, for example, is full of useful resources that you can use to find out more about any stocks you’re interested in.
Follow financial news sites to learn more about current investing news. You can also look into various apps that provide info on stock quotes and dividend yields.
Brokerage accounts are another source for investment news and pricing information of stocks. Investors with a brokerage account will often have several tools and resources available to them. Online brokerage accounts also usually enable you to receive personalized, research-based reports and analysis to help you invest more wisely.
You’ll also find a wealth of information and useful tools provided by the SEC and various stock exchanges. You’ll find up-to-date data on dividend payouts and any filings made by publicly traded companies. You can also browse through dividend histories of companies using intuitive search tools.
So why buy stocks that don’t pay dividends? Doesn’t seem worth it, does it? Well, that really all depends on your purpose for investing. If you are strictly seeking a monetary return for your investment, then stocks that pay dividends are the way to go. But there may be other reasons to invest in stocks, such as the overall benefit to your portfolio.
Many stocks that don’t pay dividends still have great value. A particular company with great earnings and growth can be very valuable. And, instead of paying dividends on stock, the company may decide to reinvest earnings into expanding or other projects. This, in turn, could yield even more growth, and subsequently, raise the value of the stock.
And sometimes, companies choose not to pay dividends simply because re-investing the cash profits makes more sense. Or it could also be due to current tax rates or to avoid high costs associated with the issuing of new stock.
There are other purposes to investing in these stocks. However, you should speak to an experienced financial planner or investment analyst before doing so.
The stock market is not something to enter into without a great amount of planning and research. Just because you see a company paying large dividends doesn’t mean you should quickly invest in it. Prices of stocks often take a quick turn, and without a solid knowledge of how everything works, you could be taking a substantial risk. Savvy investors often engage in a lot of analysis and strategy before choosing a stock to purchase.
Take the time to speak with those who already possess ample experience in investing. Use the resources and information available to you and you’ll be in a better position to make smart choices. And hopefully, you’ll begin to earn money on dividends in the near future.