What are dividends What are dividends

Whether you have been investing in funds or are completely new to this market – you would have heard about the various ways you grow your wealth through stocks. If you already know bits and pieces about investing in funds from the stock market – you need to know that you make money in two ways through them. One of them is capital gains, and the other one is through dividends.

Capital gains are profits that you make when you buy a share for a price and sell it for much higher than what you bought. But what are dividends? Let’s see.

What Are Dividends?

Before we can get going to know what the highest dividend paying stocks in India are, let us understand everything that we need to know about dividends in the first place.

A dividend is a distribution of a company’s earnings to a class of its shareholders, as determined by the company’s directors. A common shareholder of a dividend-paying company is typically eligible as long as they own the stock before the ex-dividend date. Dividends will always be paid out as cash or in the form of additional stock.

Dividends – Explained

Dividends need to be approved by the shareholders through their voting rights. Though cash dividends are common, these dividends can also be issued as shares of the stock or other assets. Along with the companies, varied mutual funds and exchange-traded funds pay dividends.

A dividend is a token reward that is paid to the shareholder for the investment in a company’s equity, and it usually begins from the company’s net profits. However, major portions of the profits are kept within the company as retained earnings. It represents the money to be utilized for the company’s ongoing and future business activities – the remainder could be allocated to the shareholders as a dividend.

Sometimes, the companies may still make dividend payments even when they do not make suitable profits. They may do this to maintain their established track record of making regular dividend payments.

The directorial board could choose to issue dividends over varied time frames and with different payout rates.

These dividends could be given at a scheduled frequency, like monthly, quarterly, or annually. Companies would also choose to issue non-recurring special dividends, either individually or in addition to a scheduled dividend.

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How to Find Dividend Paying Stocks?

The hard job is never finding stocks that would give you the dividend option; you can choose websites, platforms, and broker firms that you trust the most to find stocks with the dividend scheme.

For instance, on one of those portals, you could use the stock search option tool and find stocks.

Well, do you want to know some of the best dividend stocks in 2022? Let’s keep going then.

  1. Lucky Block
  2. Exxon Mobil
  3. Prospect Capital Corporation
  4. Rio Tinto
  5. Johnson & Johnson

Are dividends really that good? Well, as an investor, they actually matter to you, did you know? Let’s find out why they matter to you.

Why do Dividend Stocks Matter to You?

There are various perks to having safe dividend stocks in your portfolio; let us see why.

1. You have more Potential to Growth and Expansion of your Profits

This is one of the primary benefits of investing in dividend stocks. They will always tend to steady and grow over time.

2. They are a Favour for Equity Evaluation

Just as the impact of dividends on a total return on investment, or ROI, is quite frequently overlooked by investors. The evaluation of stocks utilizing dividends is often a more reliable equity evaluation measure than a lot of other commonly used metrics like the price to earnings ratio.

3. They Also Give you Tax Advantages

The way dividends are treated in the context of taxes makes dividends a very tax-efficient means of getting income. Some qualified dividends are taxed at lower rates than ordinary income.

4. They Preserve the Purchasing Power of Capital

They also help in another area where investors sometimes fail to know the effect of inflation on investment returns. For the investor to realize any genuine net gain from an investment, the investment needs to first get enough of a return to overcome the loss of buying power that results from inflation.

5. It Reduces your Risks

Dividends are a major element to reduce the overall portfolio risks. In terms of reducing risk, dividend payments mitigate any losses that happen from a decline in a stock price. The risk reduction benefit of these dividend stocks just goes beyond that basic fact. Even historically, it has been shown that dividend-paying stocks outperform non-dividend-paying stocks in a bear market period.

While the overall downmarket generally drag down stocks across the board, dividend-paying stocks would usually suffer a lesser decline in value than the non-dividend paying stocks.

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So, go ahead and start looking out for your dividend stock. But also make sure you have done enough research on the business.

Disclaimer: This article is not a financial advice, investing in stocks or anything similar are subject to market risks and you should always do your own research before investing anywhere.

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