When are dividends paid?
Dividends can be paid in variety of intervals. Quarterly is the most common payout period. However, some dividends may be paid monthly, semi-annually, or annually.
What do companies do with excess money?
Companies can focus on growth and reinvest their profits to help expand sales. Many companies spend a good deal of their earnings building new factories, expanding operations, or on research and development to enhance or even create lines of business. This is common for young “growth” companies.
Companies can also keep part of their profits. It is with these retained earnings that they can pay a portion of their profits back to their shareholders in the form of a dividend.
It’s important to know that not at all publicly traded companies pay out dividends to their shareholders. Furthermore, not all dividend-paying companies pay the same amount or handle the payments in the same manner. Choosing the right dividend paying stock for your portfolio will require some research and due diligence on your part.
Process of receiving a dividend payment
For investors, the process of receiving a dividend payment starts when they buy shares of a dividend paying company. At the end of each quarter, the corporation will review their financial performance. Based on that performance, the Board of Directors may decide to issue dividends and subsequently determine how much the dividend payment will be. Keep in mind, even if a dividend paying company falls short of their goals, they will likely still issue a dividend.
Most dividend paying companies build their payment into their long-term strategic plan. Since shareholders often buy their stock for a dividend and rely on the payment, they generally commit to a consistent dividend strategy. Companies focused on paying regular, growing dividends each year make the best holdings for a long-term dividend investor.
After the Board of Directors determines the dividend, they will declare the upcoming dividend payment. This announcement will include how much that dividend will be per share, as well as the timeline for the dividends including the ex-dividend date, record date, and payment date.
The final step in this process is that you, the shareholder, receive your dividend payment.