Best stock dividends
When a new company is being set up or when an existing company is in need of additional capital to finance new ventures, new stocks are issued to raise the needed money. Through the purchase of shares a person not only has a share in the ownership of the company but is also entitled to a portion of the profits earned, called as dividends. Profit making c ompanies normally make annual, half yearly or even quarterly dividend payouts. However, a company has the freedom to declare dividends whenever it wishes. Some companies retain a portion of their profits, usually termed as retained earnings for re-investing in newer businesses.
Evaluating sustainability of dividend payments
Two parameters are used to analyse whether a company will be able to sustain the dividend payout to its shareholders in the long run. They are:
Factors affecting dividend payouts
Several factors determine the dividend paid by a company. Companies, which have been continuously making profits for consecutive years, are able to pay higher dividends. The prices of such stocks always move up in the stock market. Companies, which do not make good profits, find it difficult to pay dividends on time. Such companies, which were earlier able to declare quarterly dividend payouts, are now able to give only half-yearly payouts. Not only that, when the profits decrease, the dividend paid also decreases. Factors that affect the profitability of a company are sometimes beyond the control of the management. But such instances are quite uncommon and very rare. But a careful study will reveal that mismanagement and lack of emphasis on updating technologies, processes and methodologies are the prime reasons for the decline in market share for the products and services of a company.
Choosing stocks with good dividends
The primary aim of any business strategy is maximization of returns. An in-depth study and a comparison of the various stock options should be undertaken based on various aspects like risk factors, availability of funds for investments, period for which investment is planned, purpose of the investment and the tax implications of the investment. When comparing returns it is absolutely necessary to compare post tax returns. Some investments may offer higher pre-tax returns but the post tax returns will be lower. The weightage given to each stock is determined by the dividend given by the company, profits, reputation of the company etc. The first 30 stocks listed in the Dow Jones Industrial Average are the best performing stocks and the best dividend payng stocks belong to this top 30 list.
Sailing longer in the Bull Run
A new investor should not sell his stocks in panic when there is s sudden fluctuation in the stock market. The volatility expected during the earning seasons and the decline in some stocks must be considered as an opportunity to buy new stocks. The buying must be done cautiously and one should not buy all stocks in one go, because the a company which is able to provide higher dividends may not be able to do the same at a later date. Rather it is better to buy in a staggering manner, by selecting stocks from different portfolios. A novice to the stock market should not buy a particular stock unless and until they understand the various nuances of the stock market. Otherwise it is better to ask for the advice of an expert, regarding the reputation of the company and its ability to pay higher dividends. When investing he should be sure about the future growth prospects of the company.
For beginners, it is better to buy stocks of companies that are likely to grow and be benefited by operations on a global scale and have a reputation for consistent growth and profits over a period of time. Targeting stocks of businesses that are consumption and infrastructure based like power, capital goods, retail, media and entertainment is a good option. When buying growth-oriented dividend yielding stocks, investments in high volatile commodity sectors like metal, steel, cement etc should be minimized. Recently during a market volatility, many of the hot stocks were available at lower prices and new investors can consider buying more of these stocks. Investments in low priced stocks should be done cautiously and only after much research. Investors must always adopt long-term investment strategies rather than look for short-term gains. When following this investment strategy, they will never get strangled by the bear, but will be able to ride the bull smoothly in the long run.
Declaring dividends
Declaring dividends is the discretion of the board of directors of a company. It is paid either as cash or in some cases as additional stocks of the company. Before paying the dividend, the company board meets and makes a thorough analysis of the performance of the company on various fronts. The areas in which the company is strong and competitive, the newer emerging opportunities that the company can capitalize on, the areas in which the company is weak and needs more attention and the future threats that may arise are carefully studied. Thus the total amount to be paid as dividend and the date in which the payment is to be made is fixed.
Eligibility for dividendsAll shareholders of a company are eligible to their rightful share of dividends, which are declared periodically. However the dividend amount earned by each shareholder depends on the number of shares owned by him. Even investors who have purchased shares of a company just one day prior to the declaration of the dividends are also eligible to receive the dividends. An investor intending to sell his stock can sell it on the day the dividend is being declared, because he is still entitled to his share of the dividends. But a customer purchasing this stock from an investor on the day the dividends are being declared will become a stockholder only the next day and he will not be eligible to receive the dividends.
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