What is the dividend and how it benefits the investor
According to the dictionary, dividends are the proportion of the amount of the company "distributed to its shareholders" from its proceeds. The company divides the annual net profit by the total number of shares and dividends to the shareholders.
Suppose your annual dividend is $ 1 per share. You can get a check for $ 1 per share per year, or $ 0.25 per quarter. On a per-share basis, this amount seems insignificant, but if you hold a large number of shares, the amount becomes quite attractive and attractive. Those who buy thousands of shares when they issue a corporate IPO receive a lot of money from the dividend. It becomes a substantial part of your regular income, and as your company grows, your stock holds value.
The most successful companies, especially blue-chip companies, pay dividends on a regular basis to shareholders. In fact, dividend payments become their unique sales prerequisites – USP. Quite a number of stock investors choose to invest in certain companies because they pay dividends quarterly or year after year. Blue-chip companies such as Coca-Cola, Wal-Mart, and McDonalds are all on a yearly or quarterly basis.
A company that pays dividends. People investing in stocks of these companies even if they know the value of their stock is too high. Investors were fortunate in time to forget that they had bought their shares at a higher price.
The Company pays dividends in cash and shares. Sometimes the company invests its profits in other channels or does not have sufficient cash reserves because it is in the form of accounts receivable in the company's balance sheet. As a result, they pay dividends in the form of shares.
Another reason why companies pay dividends in the form of stocks is that they want to lower the price per share in order to encourage more transactions and promote more liquidity (which means that investors can How fast to convert his stock into cash). The problem may arise – how to reduce the stock price to increase its liquidity? The answer is that most people prefer to buy low-priced stocks, not high-priced stocks. You are more likely to invest $ 10 share of the share than $ 100.
Sometimes, the cash dividend per share is usually converted into shares. Dividends per share can only be converted into shares, because the shares are expensive. However, if you have already said that if you have thousands of shares, you will get a lot of additional shares. Obviously, your holdings in the company increase the number of shares you get stock.
How to divide a dividend?
The concept of dividend payments can be explained by a practical example.
Suppose a company has 100 shares of common stock. It has five shareholders. 20 shares per share. Suppose further that the market price of each stock is $ 50. This means that the company's total capital stock value is 50×100 = $ 5,000.
The Company has now decided to issue 20% of the shares as dividends. The company creates 20 shares for its five shareholders. 5 shareholders each received 4 dividends.
The Company's shares are now up 120 shares, each investor now owns 24 shares
] It must be pointed out that although the total value of 20 shares per share is 20×50 = $ 1,000 before the dividend, the total value of his 24 shares is still $ 1,000. Obviously, the value of its stock has now fallen. The price per share is now replaced by (1,000 divided by 24) $ 41.66 instead of $ 50 earlier. The company's total market capitalization was also unchanged at $ 5,000.
An important question now is how the investor gains the value of the stock, and the value of the investor remains constant when the dividend is announced. The answer to this question is that he obtained it in two ways. First, the value of the stock must grow over time. Second, when the next dividend announcement next year, the existing stock will further increase.