word dividend on top of money

Dividend Stocks: Basic Terms and Strategies

Dividend stocks can help add to your savings if you know how to do it right.

Dividend business words concept

The word dividend with red background over other collection of words related to the business.

Just like anything out there, there are basic knowledge that you should consider learning.

Here are some of them:

Terms

  • Cash Dividend

These are usually paid using the company’s current earnings or accumulated profits. Cash dividends are cash payments made to stockholders. They are paid on a per share basis. Also, they are quoted as dollar amounts or percentage of current market value.

  • Date of Record

The date used by the company in order to ascertain its shareholders.

  • Declaration Date

The date a company’s board of Directors announces their upcoming dividend.

  • Dividend

This is a distribution of a certain amount of a company’s earnings which is then paid to its qualified shareholders. It can come in the form of cash, stock, or property,

  • Dividend Coverage Ratio

This is the ratio among a company’s earnings and its net dividend to shareholders.  It’s calculated through division of earnings per share and the dividend per share. This can help you, as an investor, to determine whether a company’s earnings are enough to cover its dividend obligations.

  • Dividend Yield

A ratio that shows the amount a company pays out in dividends per year relative to its share price.

  • Ex-Dividend Date

A date which denotes when a stock was traded with no previously declared dividend.

  • One-time Dividend

A special dividend paid aside from the regular cash dividends.

  • Payment Date

The date declared by the company for the dividend to be paid.

  • Shareholder

Any person, company or institution that owns at least one share in a company. Also known as stockholder.

  • Stock Dividend

These are dividends in the form of additional shares of stock instead of it being cash.

 

Strategies

  • Dividend Income

When using this strategy, your goal is to have a steady stream of liable income. This relies mostly on safe stocks that have consistent dividends. The percentage yield tends to be lower due to prioritizing sustainability instead of yield. This is advantageous to poor economies as lower yields are easier to maintain.

  • Dividend Growth

With this strategy, your goal is to be able to reliably grow your dividend return over time. This mostly involves choosing stocks that has been known to consistently pay and raise dividends.

  • Tax Strategy

This strategy aims to help you lower the burden of taxes on your income. There have been qualified dividends in the U.S. for the past few years that didn’t receive any tax. Tax efficiency should be one of the main topics you research on for your investment journey.

  • Dividend Yield

Your goal here is to maximize dividend yield. This can be filled with chasing stocks that have the best dividend yields. It’s a high possibility that you will have a lot of turnover in this kind of portfolio due to most of the highest dividend yields being unsustainable.

Read more about 4 Dividend Stocks Investing Mistakes You Need to Avoid.

 

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