Some Common Ways in Which You Might Receive Dividends Upon Investing in Stocks

1. Some Common Ways in Which You Might Receive Dividends Upon Investing in Stocks If the investment journey is an uphill climb, the returns are akin to the breathtaking view from the top – i.e. the spectacular reward you enjoy as a result of your determination and efforts. And when it comes to investment in stocks, this reward is received by investors in the form of dividends. Dividends are essentially shares or portions of investment profits that are systematically paid out at regular intervals to the stockholder. These dividends are typically decided and managed by the company’s board of directors, and they are given out to investors in the form of cash payments, shares, property and so on. As a result of the profitability prospects, investors often make conscious decisions to opt for dividend mutual funds investments or schemes that invest only in those stocks that promise to pay dividends. Here is a bifurcation of the different ways in which a private company offering shares may pay dividends to an investor: 1.Cash Dividends Cash dividends are the most common forms of dividend payments in the stock market. Here, the company reserves a portion of its earnings for its stockholders and transfers them specific cash amounts as dividends. However, one important aspect to remember about cash dividends is that the share price of the company drops proportionately in relation to the percentage of dividends received by investors. For instance, if investors receive a cash dividend which is 7% of the total profits earned by the company, the share price of the company reduces by 7%. 2.Stock Dividends A stock dividend is another technique that private companies may leverage to pay dividends to the investor if they do not have a sufficient inflow of cash. Here, as the company earns profits, common stockholders are issued more common stocks as dividends. However, the proportion of stock dividends issued to stockholders ideally should not exceed 25% of the previous shares outstanding, in which case the issuing of stocks in this manner is considered a ‘stock split’.

2. 3.Scrip Dividends Investment in stocks may sometimes also involve scrip dividends, which are usually issued by companies when they cannot afford to issue dividends at present. These companies issue promissory notes to their shareholders as a means of reassurance to pay them some time in the future. 4.Property Dividends Private companies may sometimes provide dividends to investors in the form of property or other non-monetary assets as opposed to stocks or cash dividends. These dividends, called property dividends, may include real estate, equipments etc. that can come in handy for the investor. 5.Liquidating Dividends Liquidating dividends are provided to investors when the company is about to shut down its business. In this scenario, upon liquidation of assets, the organization distributes capital to its investors in the form of dividends, once the principal amounts and interests are settled between the two parties. Usually, liquidating dividends are paid to investors at the fag end, just before the company finally closes down. Conclusion The favourable effects of positive reinforcement has been observed and proven time and again in the field of behavioural psychology. Thus, the implementation of this principle to the field of stocks and investments is an effective way to encourage and appreciate investors along the way. Many investors often look for investment avenues that pay reasonable dividends – both in the form of individual stock investments as well as while opting for mutual funds and SIP investment plans. Consulting a reliable stock brokerage firm and earmarking the right investment avenues that pay reasonable dividends can help investors earn additional benefits besides the usual stock returns.