Dividend Stock is a type of stock that results in the pay out of a portion of a companies profits for every share owned by the stockholder. When a company makes a profit they have the option of reinvesting the money into the company or issuing part, or all, of that profit back to the shareholder.
There are a number of different forms of dividend stock. They can be cash dividends, stock dividends and some companies even have dividend reinvestment plans. Cash dividends are dividends that are paid in monetary amounts to the stock holder. When cash dividends are issued by the company they will be issued at a fixed amount for every share that is held by the stockholder. Stock dividends are dividends that are issued in the form of stock instead of cash. In this way, when the corporation wishes to issue a dividend, they will issue the stockholder new stock in the company in lieu of cash. This is usually a small fraction of a whole share. Some companies have dividend reinvestment plans which automatically reinvest any cash dividends that the company issues back to the company in exchange for new stock. A stockholder must opt into the dividend reinvestment plan, if it is offered, and is usually found in blue chip stocks and for stocks that do not have a high cash dividend payout.
What stockholders are eligible for dividend stock?
There are essentially two types of stock that a company will issue: common stock and preferred stock. Common stock is categorized as stock that gives the stockholder voting rights in the company. Preferred stock does not give voting rights in the company, but instead the preferred stockholder is given priority in dividend payouts. While both stockholders may be classified as dividend stock only the preferred stock is assured dividends; common stockholders are given dividends but only in certain situations.
When a company decides to issue dividends to common stock holders it must first pay the preferred stock holders any dividends owed before paying any amount to common stock holders. For example, if a company has a plan where preferred stock holders get $1 in cash dividends every year and the company has not paid dividends for 3 years it must pay $3 to every preferred stock holder before it will be allowed to issue dividends to common stock holder.
Are there any dates that I should know about?
When discussing dividend stock it is important to have a number of dates in your vocabulary. The declaration date is the date that the board of directors of the company decides to issue the stock. Upon declaration of the stock dividend the company is bound by the decision and it is treated as an obligation. The In dividend date is a specific date, usually just before the payment date, where any new stock holders will be included in the dividend. The record date is the date where no new stock holders will be included in the dividend payout.