Two Types of Dividends You can Get from Stock Investing

by Gily Tenorio on April 30, 2013

in Stocks

Investing in stocks offers many earning opportunities and at the same time, you will be able to help the Philippine economy on your own little ways. It is becoming popular these days because media has placed it in the spotlight in the past several months due to the many record breaking statistics of Philippine stock market.

Though for ordinary people, they may not know how stock works but it affects everyone of us indirectly. Small investors like you and me would somehow can  feel the effect of rising economy through investing in stocks.

Most people may ask you how you can earn from investing in stocks. Actually, there are two ways on how to earn money from stock investing: capital or price appreciation of stock you’re owning and the dividend payout.

two types of dividend

 

What is Dividend?

According to Investopedia.com, dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Please take note that not all stocks pay dividends but certainly all will appreciate its price in due time unless the company closes or files bankruptcy.

Normally, dividend is being paid to shareholders as a form of profit sharing of the company. Most established companies or those who called as “blue chips” always give dividend to its shareholders.

For those stocks that pay dividend, also called dividend stocks, dividend payout is included in the company policy and it is mandatory for them to give it to shareholders. It is also one way of the company to attract as many investors as possible since most investors look for decent payout from dividends.

There are some dates that you need to know when investing in stocks that pay dividend. These dates are the Ex-date, Record date and Payout date.

You can see theses dates when you log in to your Citiseconline account under the “Dividend History” of the company. It is also being announced by Philippine Stock Exhange (PSE) when the company will give the dividend.

To fully understand, you must buy or own the stock on or before the Ex-date so you’ll be entitled to the dividend payout. Moreover, you need to hold that that stock until the Record date. If you sell the stock before the Record date, you cannot get the dividend.

Finally, the payout date is when you will receive your cash or stock dividend.  Normally, your stockbroker will send you an email message with the details of dividend payout just like the image below.

meralco dividend payment

 

Two Types of Dividends

Like what I said earlier, there are two types of dividend being paid to stockholders: cash dividend and stock dividend. Cash dividend is a dividend in the form of cash that will be directly added to your stock account balance. The amount of cash to be added will be net of taxes which is 10% of the Gross amount.

Some investors will normally re-invest the cash dividend they receive while you may withdraw it since it is your own money. But I think it is better to re-invest the money for your future buying of additional shares.

On the other hand, stock dividend is dividend in the form of shares of stock of the company or its subsidiary company. The addition of share is also automatic and will be directly added to the number of shares you owned.

For example, when I bought RFM one year ago, the dividend it paid to its shareholders is Swift Foods, Inc. (SFP). However, RFM also pays cash dividend once a year.

When stock dividend will be paid out, the price of stock is already announced before payout so you’ll know how much it is. The quantity of  stock dividends that will be paid out to you depends on the number of shares you currently owned.

For example, for every 10 shares of stock X, you will receive 1 share of stock X. Sometimes, the scenario is like this: for every 100 shares of stock A, you will get 2 shares of stock B.

 

Final Notes

Investing in stocks offers higher opportunity of earning more money from the money that yo already have. Compared with savings account and time deposit, stock gives better returns and profit for the investor.

Though stock investing has no guarantee of profit, the risk of losing money will be very low especially when you’re planning to invest for more than 5 years and you invest in blue chips or those stocks included in the Philippine Stock Exchange Index (PSEi). In addition, don’t invest on stocks that you don’t know and fully understand on how they make money.

I advise you not to invest in unknown companies unless you carefully study about it. It will be better to invest in dividend stocks such as Globe, Meralco, Semirara Mining, GMA7 and URC to name a few.

Disclaimer: I have shares of Globe, RFM and Meralco. I will continue to add more shares in the future because of good dividend they’re paying to their shareholders.

How about you? What stocks do you own that pay dividend?

About the Author:

GilGil Tenorio is a blogger, a husband, a father, and an active Christian. He likes playing guitar, C.S. Lewis, Plants and Zombies and NBA. Follow him at Facebook, Google+, YouTube and Twitter. Thanks!

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