What is a Dividend?
A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis. Not all companies pay dividends. For instance, if you trade penny stocks, you’re likely not investing to receive dividends.
When a company makes a profit, they may choose to distribute a portion of its profits to its shareholders. This is done through a dividend payment. Many listed companies will choose to pay dividends twice a year. This is usually known as an ‘interim dividend’, which means it is paid halfway through the financial year, with a ‘final dividend’, paid at the end of the financial year. Companies can choose to pay dividends more or less frequently. If a company hasn’t made a profit or chooses to reinvest its profits back into the business then it may not pay a dividend at all. When you purchase a share, it is wise to check whether a share is trading 'cum' or 'ex-dividend' before you trade. Typically, an ex-dividend date is set at four business days prior to the record date. To be entitled a dividend you would be required to purchase the shares before the ex-dividend date. The record date is 5.00pm on the date a company closes its share register to determine which shareholders are entitled to receive the current dividend. It is the date when all changes to registration details must be finalised. If you buy the shares before the ex-dividend date you will be buying them 'cum dividend' which means you will get the current dividend. Whereas, if you buy shares on or after the ex-dividend date you will miss out on the current dividend. In the lead up to the ex-dividend date the share price will often rise due to the heightened demand for a share with a dividend attached. Similarly, the share price may fall once the ex-dividend date passes. The fall in share price is usually by the value of the dividend released as the company is giving back part of its value to shareholders.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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