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Interesting facts about dividends
The five most important dividend issues
1What is a dividend?
As a shareholder, you are a co-owner of a stock corporation and thus participate in the profits of the company. Among other things, the Annual General Meeting decides what will be done with the profit. If you invest the money back into the company (product development, research, marketing, etc.) or if you pay the shareholders a profit share in the form of a dividend.
2What types of dividends are there?
Normally, the dividend is paid in cash. The shareholder receives a predetermined amount per share transferred to his account. Example:The investor holds 100 shares at a current price of €40. A cash dividend of €1.20 is paid. Thus the investor receives 120€ (without tax).
Some companies also offer a stock dividend. Here the compound interest effect is perfectly used. Example: Our investor of the 1. example gets here instead of 120€ cash dividend three further shares into its depot. The tax arises only if he sells.
Now and then there is also a distribution in the form of material assets / material dividends. For example, this could be an interest in a subsidiary that is spun off. The shareholder is then invested in both companies.
3When and how often is a dividend paid?
That varies from company to company.
Most German stock corporations pay once a year a dividend. This is determined at the Annual General Meeting and is usually paid out on this day. The board of directors makes a dividend proposal, which the shareholders usually also agree to.
In America, on the other hand, it is common practice for dividends to be paid once in a quarter. Thus, the shareholder receives a dividend four times a year.
There are also corporations that have paid a monthly dividend for several decades. This is a useful option for investors who want to build up a regular additional income.
And last but not least, there are also companies that reinvest their profits completely . In the technology sector, for example, the surplus money is not distributed to the shareholders, but reinvested in research and development.
4How is the dividend yield calculated?
The dividend yield is easy to calculate. Divide the cash dividend by the current share price and multiply the result by the factor 100.
IMPORTANT: Shares with a particularly high dividend yield are not necessarily a profitable investment. The ratios that are often shown on financial portals are expected by experts. However, if a share falls sharply and the estimated cash dividend is still assumed, the dividend yield increases. One should not pay attention therefore under any circumstances with the investment of funds only to this characteristic number!
5When do you have to buy a share to get the dividend?
As a rule, it is sufficient if the share is in the securities account on the day of the Annual General Meeting. On the day on which the dividend is paid, the share is traded "ex dividend". This means that the value of the dividend is deducted from the share price. It is therefore not worth buying the stock shortly before or shortly after the dividend distribution - this is basically a zero-sum game.
If the company pays a dividend several times a year, there are certain holding periods. It is best to read these on the company's website before investing. In most cases, the point "Investor Relations" is at the bottom of the website.
Shareholders participate in company profits in the form of dividends
There are cash dividends, stock dividends and property dividends
Many companies distribute the dividend on the day of the Annual General Meeting. But they also pay their own dividends quarterly or even monthly
The dividend yield is calculated using this formula: Dividend ÷ Share price · 100
In most cases, it is sufficient for the dividend to be held in the custody account on the day of the Annual General Meeting. If a profit distribution is made several times a year, there are certain holding periods
What types of dividends are there?
Dividend Aristocrats are the Champions on the stock market! A company must be able to increase the dividend over 25 years continuously to adorn itself with this title. One can therefore assume that this is an economically strong and healthy company. Despite worse financial & economic crises many aristocrats could continue their success series in the past. That is no warranty for the future, one can assume however that the management will do everything, in order not to lose this desired title. Shares with such a stable growth are perfectly suitable for a long-term investment.
If you search in this context for shares with high yield dividends you will quickly find a lot of negative press. And that is also not completely unjustified. One should be very careful with dividends of over 10%. Nevertheless, there are companies that can actually pay a very high dividend on a regular basis. However, one should not expect them to shine with rising prices at the same time. For investors who attach more importance to the high dividend yield than to a rising price, high yield shares are certainly worth considering. But always remember: "High yield = high risk!"
The question why consumer stocks are so popular is easy to answer. If you go through the supermarket with your eyes open, the same brands jump into your face again and again. Whether it's Maggi by Nestlé, Gillette by Procter&Gamble or AXE by Unilever, all these items are constantly bought by us. So it's no wonder that the share prices of these companies are constantly on the rise. And also the dividend histories of these corporations can be seen. Procter&Gamble already pays a dividend since 1890 year after year. So for a long-term investment one should not only buy the products of these consumer companies.
On the stock exchange you can also invest your money in so-called REIT's (Real Estate Investment Trusts). These are corporations that acquire, lease and rent real estate. The investor gets with most REIT's a monthly dividend. If one reinvests here constantly its profit distributions, one can obtain a beautiful compound interest effect. Since most companies must distribute 90% of the profit to the shareholders, little money remains around itself in growth to invest. One should count thus on the fact that the courses can fluctuate clearly. For investors, who would like themselves to develop besides a small passives income, such investments are a good choice.
It makes sense to diversify your depot. This means that you don't put all your eggs in one basket. And that's exactly what a fund manager does. He selects the most promising investments and reacts when something changes. So it doesn't hurt when a stock falls. With dividend funds you can choose between accumulating and distributing funds. While with a accumulating fund the gained money is reinvested immediately into shares or securities, one gets with the distributing fund new portions credited. Both profit with a long-term plant from the compound interest effect. The regular investing of a dividend fund can be very effective.
ETF's means written out "Exchange Traded Funds". This means that ETF's can be traded on the stock exchange at any time and, in contrast to managed funds, without an issue surcharge. A previously defined index is replicated here. Once set up, the ETF does not have to be constantly controlled, so administration fees are also omitted. There are very good dividend ETF's that perform better than managed funds. On the one hand this is due to the lower costs, on the other hand to the fact that fund managers are only people who act according to their gut feeling. If you want to save yourself regular fees, you should take a closer look at ETF's.
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