Share yield factors: dividend benefits
In the process of investment activity, market participants shall identify various factors of returns that can be obtained from a certain asset. For example, acquisition of shares allows earning on the difference of the price of securities, as well as receiving dividends. Ownership of shares presupposes receiving a part of business, which gives profit. Accordingly, the investor can count on a share of these profits.
Dividends represent a part of the company’s profit, which is shared between all shareholders according to the type and share of securities they own. Not all firms make payments; in most cases, large corporations such as Microsoft, Intel or Russian Gazprom do. Companies that are in the process of development do not provide dividends, which is a positive factor. In this case, all business profits are aimed at process improvement and expansion, which stimulates the growth of quotations on stock exchanges.
There are two types of shares – ordinary and preferred. Acquisition of the former implies ownership of a part of the company, participation in shareholder meetings and receipt of dividends.
Preferred securities do not have the right to influence the processes in the company, but by owning them, one can count on priority in payments. In the event of financial difficulties, the holders of a such type of shares shall receive dividends, but in the event of ordinary shares, they shall not be entitled to expect any accruals.
However, there is one nuance in this situation. The decision to pay for both shares and their size belongs exclusively to the company, and the amounts do not depend on the amount of profit. To understand whether to count on dividends, an investor should study the company’s accrual statistics for several years. If payments are made over an extended period of time, there is a chance that they will be made in the future. In addition, dividends are not accrued on shares that have not been put up for sale and those on the company’s personal balance sheet.
As for the Russian market, these payments are not popular; on average, they amount to about 1-5% per annum, which is quite low compared to the United States.
Dividends are accrued to shareholders in several stages. The first stage is the Declaration date, when a company makes an official statement about the amount and date of payments. The next step is the Date of record, which implies closing the register of all shareholders. This means that the dividends will be transferred only to those people who are recorded in this document on that very day. At the Payment date stage, money is transferred to shareholders’ accounts, usually within one month after the register is closed.