When you practice value investing, and start to purchase stocks, you will likely expect a nice dividend check to come to you home at the end of the quarter. This isn’t necessarily the case. Dividends can be paid in a variety of ways and at various intervals. Some shareholders can actually be paid before others. In this article, we will look at the various types of dividend and how they are paid out.
The type of dividend that we are most familiar with are regular cash dividends. This is the profit that is paid out to the company owners, or in other words the shareholders. Some companies have two types of stock. These are common stock and preferred stock. Any corporation paying out cash dividends must pay the preferred stockholders first. The preferred stock price is usually set where as the common stock price is determined by the board of directors. Before purchasing any stock in a corporation, you should be aware of you have purchased common stock or preferred stock. It could make a big difference in how much payment you receive.
Some companies actually pay out in property or property dividends. This doesn’t refer to land but tangible, tradable goods. This can be anything from salad dressing, to cars to beans. These are given at market value on the declaration date.
Finally, a corporation may at times pay out special one time dividends. These are rare and can be the result of a legal victory or a corporate reshuffle. These dividends can be paid out in a variety of ways as well. They can take the form of cash, stock or property. There is a great advantage to one time dividends in that they are tax free. These one time dividends are not looked upon as company profit but a return of investors money, this makes them exempt from both state and federal taxes.
When investing in a company, you must know the type of stock you hold. Be aware of the differenced between common and preferred stock so you’re not disappointed when the corporation decides to pay out. Be sure you know what you will be paid in as well. If you’re not a trader then property dividends may not be useful to you.
Value investing can be a good way to build a solid financial future. Those that take their time and invest wisely can make significant profits over the long term.