To receive income from shares, it is not necessary to constantly trade them on the stock exchange. You can bet on dividends.
What are dividends upon shares?
Dividends are the income of a shareholder. In fact, it is a part of the joint-stock company profit, distributed among the shareholders. The amount of dividends depends on:
• financial standing and profit of the company;
• expenses, taxation base;
• the channels of net profit distribution.
Let's say the company earned € 100 million as of 2017. Of these, 20 million went to cover taxes and various dues and fees. The remaining 80 million is the sum to be distributed among the shareholders and the company itself. It was decided at the Shareholders' General Meeting to let 50% (that is, 40 million) on the development expenses – to buy new equipment, to strengthen the staffing and to start a new branch. 40 million are left to distribute among the shareholders.
In total, million shares were issued by the company. That is, each accounts for € 40. If you hold 100 shares, you will receive € 4,000 upon dividends. If you purchased 1,000 shares, you will have € 40,000.
When and How are the Dividends Paid?
The joint-stock company conducts payments annually, semi-annually or per quarter. The key date is the record date. Even if you have purchased the shares a few days prior, you will receive dividends upon the entire accounting period. It is not necessary to hold the shares for a year. That is why the securities appreciate in value by the end of the year and go down at the beginning of the new one. Dividends are always paid upon the previous accounting period.
Note that purchasing stocks the day prior to the record date is pointless: you are not included into the register and thus you do not receive dividends over the year. To get the dividends, you should know the trade regime. In the US, it is called ‘T + 3’. This means that if December 20 is the record day, you need to buy shares before December 17, that is 3 days prior.
Now on the dividend payment procedure.
It depends on how you have purchased them:
If you operate over the counter (or on the online stock market), the money arrive in your domestic account. You can withdraw them or invest in securities.
What shares are more likely to bring large dividends?
Not all the companies place the dividends to their shareholders’ accounts. It depends a lot on the current standing of the joint-stock company, on profits and policies.
Budding companies often invest their entire profit in development (new projects, equipment, etc.). Consequently, shareholders receive nothing. On the other hand, such companies may be interested in the inflow of investments, so they entice shareholders with the promise of high dividends upon the first or additional emission.
On shares of large companies (large-cap stocks) one may receive solid returns for many years. Those always reserve a part of their profit for payments to the shareholders. If you count on earning from dividends, large-cap stocks are the best option for investments.
Hefty dividends procure such companies as Chevron, Verizon, AT & T.