You surely already know that investing is a great way to preserve and multiply capital. However, it is possible to earn not only on the difference in exchange rates but also to make a passive profit on a share without selling it. It is also a great chance for students to provide themselves with a financially secure future. Some of them even hire some write my research paper for me services, so they always have their college writing assignments done and save time for diving deeply into investing topics. If you are one of them, then this article will be especially useful for you.
When you buy equity securities in a company, you become the owner of part of it. That means you can earn income through dividends as well.
Let’s define the terminology
A dividend is a company’s profit distributed to all stockholders. These securities can be preference shares (prefers) and common shares (ordinary). What is the difference? In the first case, the company is obliged to pay dividends, but whether you get them on common shares depends on the firm’s policy.
According to the researchers from the best writing services, the amount of dividends is also tied to the financial results of the organization: if it is doing well, the dividends increase. Otherwise, the amount decreases, or they are not paid at all. Another important question for an investor: how often will they receive payments? This also depends on the company’s dividend policy.
Below we will talk about how to choose dividend securities and maximize the profits from owning shares.
1. Choosing a company
How do you find companies with the highest dividends in the U.S. market? The easiest way is with the screeners (services with a set of filters) at finviz.com or dividend.com. How many years has the company been on the market, how is it doing, what percentage of profits is allocated to dividends, and what is the regularity and stability of payments? After answering these questions, you will have a basic picture of the topic of interest.
2. Study the dividend policy
To get a stable income it is important to calculate everything and take into account important aspects: the potential profit, and the frequency of payments. It happens that the amount of dividends does not depend on profits, that is, it is fixed. On the one hand, this is convenient and allows you to calculate the exact income, on the other hand – not so profitable.
Examine the company’s statements: how the company is doing, what its capitalization and profitability are, and whether there is potential for profit growth.
Companies that have gone through an active growth phase can afford to more intensively increase distributions to shareholders. Issuers who regularly increase the size of dividends are called dividend aristocrats. There’s even an S&P 500 Dividend Aristocrats index in the U.S. that includes large companies that have been steadily increasing their payouts for at least 25 years. They include such well-known chips as IBM, Coca-Cola, P&G, Colgate-Palmolive, and others.
3. Calculating profitability
The most successful investor is the one who loves numbers and knows how to handle them. To calculate the dividend yield, you need to divide the amount of the last paid dividend by the price at which you buy the stock and multiply by 100%.
4. Figuring out the date you buy the stock
When should you buy a stock with the expectation of receiving a dividend? It’s best to do it no later than two days before the record date before paying shareholders. But here it is necessary to consider that the quotation of securities reacts to demand: the closer the date of payment, the more willing to buy shares for the sake of the momentary benefit. But after payout day, the quote will fall by about the size of the dividend, reducing your profit to zero: this phenomenon is called the “dividend gap”.
If you want to make money, buy the stock in advance (before the board meeting at which the dividend payout will be decided) – at the price gaps. Although the final decision on payments is made by the general meeting of shareholders (GMS), the board of directors makes recommendations on the amount to be paid and sets a dividend record closing date (this date is called the “cut-off” date).
Data on such meetings and their results are published on the Internet, and the website of the Corporate Information Disclosure Center. From this point, the share price begins to rise.
It’s important to remember another important nuance – the T+2 trading mode. This is the time between the purchase of the stock and its appearance in your portfolio. This point is important to consider if you are going to buy dividend securities right before the close of the register.
5. Receiving dividends
So, to get the dividend, you need to:
Own the stock at least two days before the record date if it trades on T+2, or the closing date if it trades on T+0.
Wait for the dividend to be credited to your brokerage account. It usually takes up to 28 days.
By the way, since dividends are profits, the income may be subject to tax. Keep this in mind, so that the difference between the expected and actual amount of payments will not be an unpleasant surprise. If it is a U.S. company, it is important not to forget to fill out the W-8BEN U.S. Holder Self-Certification Form (this tip only applies to US investors – consult tax rules before investing).
Approach the business with a cool head, build up capital gradually – and who knows, maybe one day you’ll get almost $4 billion in dividends a year, like financial gurus such as Warren Buffett.