Dividends are an allocated portion of a company's net income that is distributed to its shareholders as either a cash or share reward for their investment into the company.
There are four important dates investors must know when it comes to dividends. They are, the announcement date, the ex-dividend date, the record date, and the payment date.
- The announcement date is the date a company announces its dividends.
- The Ex-Dividend date is the date the share holders must purchase stock in order to be eligible for the company's next dividend disbursement.
- The record date is the date that a company has to decide which shareholders are and are not eligible for dividends of the a specific reporting period.
- The payment date is the date when shareholders will have the dividends funded to their brokerage accounts
The frequency that dividends are dispersed can vary from company to company. Quarterly and annually are the most common frequencies that companies payout dividends. However, this does not hold true for funds that pay out dividends. As each company within a fund pays out its dividends, the fund will then subsequently disperse the dividends to its shareholder. As a result, funds can distribute dividends more frequently.
Why dividends are important
Companies that pay larger dividends could indicate that a company is no longer innovating or growing, and will utilize dividends to reward existing shareholders and to entice new investors to invest into the company.
Moreover, some investors seek equities that pay dividends in order to generate additional income for themselves.