What makes a company pay dividends

There are no guarantees that any company will offer a dividend. For example, if ABC Corp. In comparison, if XYZ Inc. Using this dividend income to buy additional stocks also allows you to build the value of your holding even further, through harnessing the power of compounding over the long term.

This publication is for information and general circulation only. It does not have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive it. You should seek advice from a financial adviser. Past performance and any forecasts on the economy, stock or bond market, or economic trends are not necessarily indicative of the future performance.

Views expressed are subject to change, and cannot be construed as advice or recommendations. References to specific securities if any are included for the purposes of illustration only. This publication has not been reviewed by the Monetary Authority of Singapore. Investors who sell the stock after the ex-dividend date are still entitled to receive the dividend, because they owned the shares as of the ex-dividend date.

Stocks that pay dividends can provide a stable and growing income stream. Investors typically prefer to invest in companies that offer dividends that increase year after year, which helps outpace inflation.

Dividends are more likely to be paid by well-established companies that no longer need to reinvest as much money back into their business. High-growth companies, such as tech or biotech companies, rarely pay dividends because they need to reinvest profits into expanding that growth. The most reliable American companies have a record of growing dividends — with no cuts — for decades. Dividends on common stock are not guaranteed. However, once a company establishes or raises a dividend, investors expect it to be maintained, even in tough times.

Because dividends are considered an indication of a company's financial well-being, investors often will devalue a stock if they think the dividend will be reduced, which lowers the share price. One note: Investors who don't want to research and pick individual dividend stocks to invest in might be interested in dividend mutual funds and dividend exchange-traded funds ETFs. These funds hold many dividend stocks within one investment and distribute dividends to investors from those holdings.

An investor can use different methods to learn more about a company's dividend and compare it to similar companies. As mentioned above, companies that can increase dividends year after year are sought after. The dividend per share DPS calculation shows the amount of dividends distributed by the company for each share of stock during a certain time period. Yield and stock price are inversely related: When one goes up, the other goes down.

The company could raise its dividend. The stock price could go down while the dividend remains unchanged. During tougher times, earnings might dip too low to cover dividends. Like a stock's dividend yield, the company's payout ratio will be listed on financial or online broker websites. Disclosure: The author held no positions in the aforementioned securities at the original time of publication. How do stock dividends work? Types of dividends. A dividend is a payment in cash or stock that public companies distribute to their shareholders.

Income investors prefer to earn a steady stream of income from dividends without needing to sell shares of stock. Dividends are how companies distribute their earnings to shareholders.

When a company pays a dividend, each share of stock of the company you own entitles you to a set dividend payment. Dividends can be cash, additional shares of stock or even warrants to buy stock.

Both private and public companies pay dividends, but not all companies offer them and no laws require them to pay their shareholders dividends. If a company chooses to pay dividends, they may be distributed monthly, quarterly or annually.

Special dividends are paid on an irregular basis. Even among companies that do pay dividends, not all shareholders are eligible to receive them equally. Preferred and common stock, as well as different classes of stock, typically earn varying dividends or none at all. Preferred stock generally has a stronger claim to dividends than common stock, for instance. A special dividend is a one-time bonus dividend payment. Special dividends are not a commitment by a company to continue offering dividend payment at that rate.

Its regular quarterly dividend rate remained 13 cents per share. A stock dividend is a dividend paid as shares of stock instead of cash.

You can sell these dividend shares for an immediate payoff, or you can hold them. A stock dividend functions essentially like an automatic dividend reinvestment program more on that below. Dividends may be paid on a monthly, quarterly or yearly basis, depending on the company.

There are three key dates to know when it comes to dividends: the declaration date, the ex-dividend date and the payment date.

In general, if you own common or preferred stock of a dividend-paying company on its ex-dividend date, you will receive a dividend. Dividends are also more common in certain industries, such as utilities and telecommunications.

Many companies pride themselves on paying dividends regardless of market conditions or other factors. Many investors, particularly retirees, may try to invest primarily or solely in such dividend-paying stocks.

On average, dividend-paying stocks return 1. Dividend stocks do not offer the same security of principal as savings accounts, though. Because they often own dividend stocks, mutual funds and exchange-traded funds ETFs may distribute dividend payments to their shareholders. A real estate investment trust REIT owns or operates income-producing real estate.

These traits make REIT stocks attractive choices for investors who want reliable dividend income and high yields. REITs offer an average dividend yield of 3. REITs focusing on certain sectors, like mortgages, may even offer higher yields.