Whether you buy shares through an IPO or through the stock market, one attractive aspect is getting regular dividends into your account as long as you own the stocks. It is one of the features that attract people to buy stocks and invest in funds. It is the amount that is paid by the company to all its shareholders regularly from the amount of profit earned by it in a financial year. The company with the help of professional financial experts and its shareholders decide the ratio or the part of profits that the company can or should pay to the investors. The rest of the amount is used by the company for various expenses and reinvestment.
What kind of dividend do you want?
Some companies pay a higher dividend and the capital amount grows slowly. On the other hand, there are companies that pay an average amount of dividend and the rest of the amount is reinvested for the growth of the company. So if you need a regular payout now and do not really need to worry about future returns then choose the plan accordingly.
Many retired people prefer this kind of an arrangement so that they have a regular source of income in the form of dividends. On the other hand, there are people who do not want a regular income presently and they also know that their tax liability will be lower if they invest the amount for a long time, then their capital gains will be calculated at a lower rate.
What happens when the dividend is paid?
Once the dividend has been announced to be paid at some future date, usually the share prices start going up. On the other hand, once the dividend has been paid then the share prices start dropping. But many companies have a good reputation and they give multiple dividends in a year, then their shares are anyway very coveted and always in demand. There are some countries where people may pay tax on the dividend and may also end up being indirectly taxed by the company as it also pays a tax on the total amount of profit earned by it.
There are some companies which adapt a buyback scheme instead of paying out dividends. When a company is liquidating its assets due to any reason then it might pay a liquidating dividend to all the shareholders. Apart from this, there are many other terms that you can read online and understand. Then you can decide what kind of company do you want to invest your money in. It is not just dividends but a good plan for investment that matters in the long term.