One of the most frequently asked questions from our community and a topic I love talking about (and participating in!) is dividend investing.
In this post, I’ll explain the basics of what dividends are all about. As always, I’ll also share a real-life example!
For those of you completely new at this, and looking to understand dividends, you came to the right place!
Let’s get started.
What Exactly Are Dividends?
Dividends are payments made by (some) publicly traded companies to their shareholders simply for owning the stock. The easiest way to think about dividends is as interest payments that you would receive from a company if you owned shares of their stock.
Companies that pay dividends do so quarterly (every 3 months). However, there are also companies that make these payments twice per year or other intervals.
You must be a shareholder of the company in order to continue getting those payments. The minute you sell the stock, dividend payments will stop.
The money used to pay a dividend comes from the company’s profits – funds available after sales once they’ve covered all business-related expenses.
When a company has money leftover they can also reinvest it back into the business, get involved in share buybacks (buy back their own stock), and/or a combination of all of these options.
It is important to note that companies are in no obligation to pay a dividend and is actually something they choose to do in order to reward shareholders for being “part-owners”.
A company with a history of paying dividends can decide at any time to stop payments.
With that said, it is extremely rare for a dividend-paying company to cut off or suspend dividends.
If a company where you own stock decides to stop or pause dividends, it is imperative that you take a very close look at WHY they’re doing it.
Once you find out the reason, ask yourself this question: Is the pause or suspension of the dividend justified? Is it a strategic move in order to reserve funds for one reason or another? This is not necessarily a bad thing as long as the business is still in healthy financial standing.
The red flag would be triggered if the business is going through some serious financial struggles and canceling the dividend is just the beginning of some serious ongoing issues.
And that’s all for today :). I hope you’ve enjoyed part II of the dividend investing series. Come back tomorrow for Part II :).
In the meantime, you can join our Dividend Investors community by clicking here.
You can also check out some of our awesome courses and resources about this topic linked below.
Cheers to HEALTH and Profits,
Mabel ❤ $
Courses and Resources for Dividend Investing Beginners:
Exclusive Course: The Wonderful World of Dividends – Step by Step Lessons on Dividend Investing for Beginners. For class details and to enroll, click here.
*Note: The course linked above includes the eBook and Investing Guide listed below*
eBook –The Wonderful World of Dividends: Step by Step Guide for Beginners – This exclusive eBook explains in detail everything you need to know about making EDUCATED decisions when it comes to dividend investments. Click here to invest in this informative resource.