Stock dividends are an opportunity for a publicly traded company to pay back their shareholders from earnings that are generated during a set time period. Most stock dividends are paid out on a quarterly basis, but there are occasions when they are paid monthly or annually. In some rare cases, a company may decide to pay a one time dividend cash payment for special circumstances.
Many stocks that pay dividends are from institutions that are more established and deemed more stable than other recently formed companies. A company typically has a few choices to reinvest their earnings. The first option typically chosen by younger companies is to reinvest their income back into growing the organization. The more established companies who are not in a growth cycle tend to pay out a portion of their earnings into dividend payments.
Important Dividend Terms
As an investor of the best dividend paying stocks, one should be aware of the following terms.
Dividend Date – The date a dividend is paid to its shareholders of record by a company. This is also often referred to as the dividend pay date.
Declaration Date – The date in which a company announces an upcoming dividend payment, typically several weeks prior to the dividend date.
Ex-Dividend Date – The date (usually a few days prior to the dividend date) in which an investor must own shares of the stock by to receive a dividend distribution.
Dividend Yield – The dividend payment per share (for the past 12 months) divided by the current share price.