What are dividends?

Dividends are the part of corporate profits that is assigned to shareholders. More stable companies choose to keep the balance by reinvesting a percentage and paying the rest as dividends, which can be done in cash or in the form of shares.

The dividends can offset the price of a stock moves not too much, instead providing an income to shareholders. Companies considered ‘high growth’ generally do not offer dividends, as they reinvest profits to maintain their growth by expanding the business. In this case, the shareholder reward is a higher than expected share price.

When are dividends paid?

Every time a company pays a dividend it must be officially declared by the Board of Directors. Generally, companies that pay cash dividends do so semiannually , although sometimes they may decide to pay an extraordinary dividend. There are some important dates to remember:

Dividend announcement date

This is the date on which the Board of Directors announces the amount of the dividend.

Ex-dividend date

Stock acquisitions may take some time to clear. To avoid any problems related to property when paying a dividend, the registration date is preceded by a limit point (usually two or three days). At this time you must own shares in the company in order to be included as a shareholder and receive a dividend.

This deadline is known as the ‘ex-dividend date’. As a listed owner, once the date has passed without dividends you can sell the shares and still receive the dividends.

Registration date

This is the date on which the company officially determines who are its qualified shareholders or holders.

Payment date

This is the day dividends are paid to shareholders. It may take a long time between the ex-dividend date and the payment date.

Corporate actions

A corporate action occurs when a publicly-listed company initiates a business change that will affect its shareholders, such as a merger, acquisition, or fractionation of the shares.

Any corporate action, in general, will have to be agreed by the company’s Board of Directors and authorized by its shareholders.

A corporate action can have important implications for the company’s finances, including the price of the shares and their performance.

Derivatives

Stock derivatives are contracts that derive their value from the price of an underlying share, that is, a share is available for trading on the stock exchange in the traditional way.

Derivatives are what IG offers: contracts for difference (CFD) are an agreement to exchange the difference in value of a financial instrument (stocks, currencies, indices …) between the time the position.

Thus, by purchasing a derivative of a share, you pay to own a contract on the underlying share, rather than the share itself. There are many types of derivatives, the most common are CFDs and futures.

 

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