There are many problems and misconceptions about dividend investing. Let’s help you stay the course by understanding how, when, and why companies pay dividends. Revisiting the mechanics of dividends will destroy your misconceptions and bring you solutions to your problems.
You’ll Learn
- A dividend is the distribution of a company’s earnings to its shareholders. But why do companies decide to pay dividends? Who decides about the dividend amount paid? This leads to the first misconception: we often see the dividend from the investor’s perspective, but the business perspective is even more important!
- Dividend-paying companies trade on the same stock markets and are part of the same sectors as publicly traded stocks. Dividends are often distributed quarterly, but sometimes monthly, to shareholders who owned the stock before the ex-dividend date. What is the ex-dividend date? Mike explains all the important dividend-related dates and discusses the misconception about making a play on ex-date.
- Dividend payments are usually deposited in investors’ brokerage accounts. We can choose between receiving it in cash or using DRIPs. We explain why both work well.
- What impacts does the dividend payment have on the stock price?
- What are the tax implications of dividends for companies and investors? Let’s look at the basics!
- There would be no dividend without dividend yield. What exactly is it, and how important is it to Mike? Is the yield’s importance a misconception? What makes a dividend yield increase?
- Now, why do companies grow their dividend payments? Does it benefit the business or only the shareholders?
- A business should typically use its free cash flow to pay dividends. However, it sometimes has to finance the dividends with debt. Is that good or bad news?
- Having a history of growing dividends does add pressure to companies. How should you react as an investor?
- Why do some people say dividends are irrelevant? Well, that’s another misconception…
- Why should we invest in dividend growth stocks? What do dividends bring to investors that growing companies not paying dividends don’t?
Related Content
Let’s tackle the important question that has been around: Is the BCE dividend safe? To answer this, we’ll look at BCE quarterly results and Telus’ earnings report to see which telco is doing best!
Strong beliefs in the investment world guide many investors’ portfolios. The problem is that many of them are not valid. It’s time to destroy misconceptions about payout ratios, PE ratios, dividend history, and volatility.
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This podcast episode has been provided by Dividend Stocks Rock.
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