What are stock dividends?
For starters, it’s good to know what stock dividends are and what they’re based on. Simply put, a dividend is a share of profits that a company distributes to its shareholders. The decision to pay a dividend is made by the annual general meeting of the company’s shareholders, based on a proposal by the board of directors.
What is the dividend yield and how is it determined?The dividend yield, which is stated as a percentage, is calculated by dividing the amount of the dividend by the stock price. In Finland, the dividend yield is indicated as a percentage of a stock’s market price instead of its nominal value.
Distribution of dividend
A company may distribute dividends to its shareholders from its unrestricted equity, which usually consists of profits earned in previous financial years. When considering investing in dividend-yielding companies, you should keep in mind that a company must have a profitable business in order to pay dividends.
So what is dividend investing? In short, it’s an investment strategy that focuses on companies that pay strong dividends. There are, roughly speaking, two types of dividend investors:
1. Those who seek immediate high dividend yields
2. Those who aim to maximise long-term dividend growth
Both approaches have the same ultimate goal – to maximise the dividend yield on your investment. Where they differ, and sometimes considerably, is in the investment horizon and more detailed investment strategy.