WHY ARE STOCK DIVIDENDS, OF SIGNIFICANCE?

Rendered only as the determining aspect of a retired investors portfolio, dividends are more than just a retiree’s investment. Regardless the age and financial situation, dividends are of utmost importance since The more dividends you reinvest, the more shares you own, and the more shares you own, the more substantial your future dividends will be. So let's start from the scratch, what is a dividend? One of the oldest tools to determine the financial health of the company, a dividend is the distribution of a certain portion of the company’s money to its shareholders. The boards of directors decide the percentage of earning to be distributed. It is the only way investors collect cash for their investment without having to sell them. Why do companies pay the dividend? Public companies are not under any obligation to pay a dividend to its stakeholders. The company can opt to either retain its profits for reinvestment purposes or distribute dividends to its shareholders as a reward. Money left over after covering operating expenses, and business reinvestment is paid equally to its shareholder. Distributing dividends to the shareholders is a maneuvering movie made by most of the company to create an appealing image of their stock in pursuit of attracting more investors and retaining the existing ones. Paying dividends further escalates the company’s stock demand, which increases its stock market price. Investors receiving the dividend see this as a sign that the company is doing well and in anticipation of continued earnings are more likely to buy its stock. It has been observed that if a company, which has been paying dividends earlier decides on either reducing or ending the dividend culture, experience a decline in their stock value. Why do people invest in dividend-paying stocks? The dividend is not a guaranteed income since not every company a portion to their shareholders. They act as a source of income for the retirees. The young population can utilize it as a source of capital by reinvesting them for more significant benefits. What are the advantages of investing in dividends paying stocks? Other than the immediate cash flow, there are several other benefits of purchasing dividend-paying stocks: CAPITAL APPRECIATION: In addition to m providing stability and income, dividend also offers capital appreciation to its investors. Companies with a documented history of paying dividends to its shareholders have seen a rise in the share price of a stock. REINVESTMENT: There is a provision followed by certain companies wherein instead of the cash distribution; they offer you an option to reinvest your cash dividends into additional shares of stock. This magnifies into a compound interest and helps grow your investment. DIVIDEND TAX RATE : Unlike the standards tax rate that applies to the income from bonds and CDs, you will have to pay a special rate of either 0 percent, 15 percent or 20 percent on your dividend income. This helps in retaining your dividend income for future use. Now that you are well-acquainted with the what, why and how of a stock dividends, splits , make sure you make a sound decision before investing. To be able to make a firm decision, you need ample stock knowledge of stock dividends, splits and other such fundamentals or help of an expert stock research firm. You can also reach out to online platforms, which have a proven success record with their historical charts and thorough stock research.