Stock dividends are a little extra perk for owning stocks in companies. It’s not always a certain thing that there will be dividends – how many there are, how much they’re worth and how often they pay out varies wildly from company to company. However, if you own stock that does pay a dividend, you can expect to get a little extra money for it, depending on the amount of stock that you own.
Usually, dividends occur when the company in question has made extra profits. In a very good year, dividends tend to be higher than they would be if the company was not doing well at all. Struggling corporations generally do not pay out dividends. You will get a dividend if you own the stock on the day that they take record of who owns how much stock, even if you end up selling your stock afterward.
The company will generally put aside a certain percentage of its profit for the dividend, and then split that depending on how much stock each person owns. You are more likely to get a dividend paid out to you if you own bonds or preferred stock. Money will go to the people who own those types of investments first.
There are also different types of dividends. First, some companies will issue a cash dividend. This means that you will just get some extra money in addition to the stock that you already own. However, some companies will do stock dividends instead. What this means is that the company will create extra shares of stock and distribute those to the share holders.
A stock dividend payment is very similar to a small-scale stock split. The stock split occurs when a company wants to have more shares of stock. The company will split up its shares, and each share will be worth a fraction of the original stock shares.
There are some advantages of stock dividends over cash dividends. First of all, the stock dividends allow money to stay in the company, instead of distributing actual capital to the stock holders. Additionally, stock dividends will not be cashed yet, and some investors prefer that.