Dividends: Find Out What They Are and How to Receive Income - Trustpilot

 Dividends: Find Out What They Are and How to Receive Income

When studying the financial market and investments in the stock exchange, the term "dividends" is often used. Dividends are the income distributed to the company's shareholders.

As such, it can be interesting to understand how dividends work and what features and differences companies trade in.

What are stock dividends?

Dividends are the profits distributed to the shareholders of the company, that is, they represent the distribution of a portion of the company's income for a certain period.

For example: You can invest in a company and thus become a partner of it. Thus, you may qualify to receive dividends as this is the company's way of dividing profits among shareholders.

However, it should be noted that not all companies pay dividends to their shareholders. In addition, the method of payment can vary greatly from one company to another.

Why does the company pay dividends?

The payment of dividends by the company depends on the income of the company. This is due to the fact that the company that incurred losses will not be able to share the proceeds among its shareholders. However, a company that generates good income is able to distribute dividends, because these incomes are part of the company's income.

Thus, each enterprise has its own characteristics and evaluation criteria for determining the share of profits distributed between investors and shareholders.

In addition, the company's profits can be used for purposes other than payments to shareholders, for example:

reinvestment for business expansion;

the cost of producing and marketing your goods or services;

costs with a minimal operating structure;

paying a debt.

Therefore, in order to identify companies that pay good dividends and still invest in business growth, you need to analyze the market. A good way to do this is through fundamental analysis.

Through such an assessment of the company, the investor can understand the business, its potential for profit and financial well-being.

As a rule, companies with small capital, that is, with low market capitalization, usually keep most of their profits, because they are companies with low market capitalization, and they are listed on the stock exchange.

On the other hand, companies with high market capitalization, i.e. companies with large and uniform presence, are more likely to pay dividends to shareholders.

Thus, market analysis can help the investor understand why some companies offer dividend payments while others do not, and how they are determined.

How do you know if a company is paying a dividend?

At the outset, it is important to emphasize that there is a way to find out which companies pay good dividends, in fact, one can even analyze companies that show great potential for future profitability.

This is because small-cap companies, also known as small businesses, can grow economically and thus become a good dividend payer.

To make this assessment, an investor can study market multiples as well as financial indicators. Thus, you can build your investment portfolio with companies that show growth potential.

In addition, it is also useful to analyze companies that actually pay dividends to shareholders. This assessment can be made using two indicators: dividend yield and dividend yield.

What is the dividend yield?

Dividend yield (DY) is a measure that relates the dividends paid by a company to the value of a stock's price during a given period. This means that it represents the percentage of dividends paid out by the stock.

Thus, the higher the DY, the more profit the company pays to its shareholders.

For example, if an investor invests $8000 in a company with 5% DY, he will get a profit of about $400. Therefore, the use of DY can be interesting to analyze the companies that pay dividends.

What is dividend distribution?

The dividend payment is an indication of the company's internal dividend policy. This indicator determines which part of the company's net profit is distributed among investors.

However, this indicator is related to the company's own strategy for raising funds and investments.

In addition, the investor can analyze the growth rate of earnings as well as the size of the debt.

Debt refers to the need to pay off the debts of the company. On the other hand, the rate of profit growth is an indicator of the sustainability of the company's dividend payments.

In this way, the investor can determine if the company can pay dividends to shareholders.

How does dividend distribution work?

The company distributes part of the profits to shareholders in several stages.

First, it is necessary to make an internal assessment of the possibility of making this payment, that is, the internal management body of the company must assess whether there is sufficient income for the distribution of income to shareholders.

After this decision, the Board publicly announces the amount to be distributed, as well as the date of registration and payment date. This procedure is filed with the Brazilian Securities Exchange Commission (CVM).

After this statement, the company has a legal obligation to pay dividends.

In addition, there is also an Ex-Date, also known as Ex-Date. This date has the function of determining who will receive the dividends reported by the company.

On this day, the shares lose the right to receive dividends. Thus, anyone who buys shares before Data Ex has the right to profit, and whoever buys after that loses the right to receive the already declared profit. However, in the future, it is possible to receive the declared dividend.

Thus, companies determine their own dividend schedule, and decisions about timing and size are made with the specifics of the company in mind. Thus, the company can make this payment monthly, semi-annually or even annually, as well as in other forms.

What are the types of dividends?

Among the different types of dividends and returns that investors can earn are:

at work

banknotes.

capital interest (JCP);

private profits

Subscription rights.

in promotions

In this case, the shareholder receives payments through the additional shares of the company, that is, he receives the number of shares in accordance with the amount he already has in the company.

banknotes

In this case, the shareholder receives the amount in cash and can even use this amount to reinvest in the company's shares.

interest on capital

JCP is a type of income similar to dividends, however, it contains a 15% income tax for the investor, as well as a corporate tax exemption. This exemption allows companies to distribute more of their income.

special return

Also known as a lump sum dividend, it is paid outside the company's earnings schedule. This means that this revenue is not distributed on predetermined dates. This type of situation is rare, but it can arise, for example, when a company decides to sell part of its business.

Subscription rights

A shareholder earns this type of profit when the company decides to issue more shares, so that he can give shareholders the right to subscribe. This right represents the ability to buy these shares before going to the market, sometimes at a lower price than what might be advertised in the market.

Should you invest in dividend companies?

First, it is important to emphasize that investing in dividend-paying stocks is a way to generate passive income, that is, income that goes to the investor's account without taking any action.

Usually, receiving monthly dividends is the goal of those who seek to live off passive income, however, not all companies pay these dividends on a monthly basis, as the payment date can change, even once every six months or even once a year.

Thus, the investor must carefully evaluate the decision, relying on the income distributed to generate profits and create solid wealth.

Additionally, since dividends are a portion of the company's dividends distributed to shareholders, the value of a single share is low. Thus, it will be necessary to own a large number of shares to make a good profit from these returns.

Hence, it is important to study and evaluate your decisions regarding investing in dividend stocks, because only by analyzing your investment profile along with market analysis will you be able to choose the most suitable solution for your financial goals.