Personal Finance Apprentice

Explaining The Different Kinds Of Dividends

Explaining The Different Kinds Of Dividends

Explaining The Different Kinds Of Dividends

Explaining The Different Kinds Of Dividends

I’ve talked before about why I like dividend paying stocks. But did you know that there are different types of dividends that can be paid to you?

I didn’t know it myself when I first started investing in the stock market. So I decided to share them with you today.

Cash Dividend

What it is: Probably the most common type of dividend. And it’s exactly how it sounds. If you own their stock, they’ll give you cash

How it’s given: Cash will be deposited to your trading account. It is also subject to tax (around 10%) so you won’t get 100% of what was declared by the company.

Why we like it: It’s cash! 🙂

Stock Dividends

What it is: Instead of cash, the company rewards you with additional shares.

How it’s given: You automatically get the additional shares on date the dividend is payable.

Why we like it: No taxes. And it carries some opportunities (and some risks).

This one is my personal favorite. Why? If you get cash, it’s a fixed amount – say 1000 pesos. But if they give you stocks, the amount is tied to the share price.

So if they give you 10 shares and the current price is 100, it’s worth 1000 too. But unlike cash, the value can go up or down. If the share price drops to 90, you lost 100 pesos. But if it the share price rises to 110, you gain an additional 100 pesos.

So why do I like it?
1. Well, if I bought the stock it means I like it. So getting more of it is good for me. And instead of using cash to buy more of it (and paying fees and taxes to do so) I just get the stocks straight up.
2. Stock dividends are usually much more generous (can be 10, 20, even 50%) than cash dividends (usually 0.5 to 6%, for the year)
3. If I need cash, I can sell it. If I just want to reinvest, I avoid more fees and taxes. It’s perfect for pretty much any situation and any investor.

Property dividends

What it is: Instead of cash or stocks, the company will distribute something it owns – shares of stock of a subsidiary or physical assets from it’s inventory.

How it’s given: I don’t have personal experience; but if it’s shares of a subsidiary, it will most likely show up in your account (similar to stock dividends). If it’s a physical asset, it will most likely be mailed to you.

Why we like it: Kind of quirky to think that JFC might decide to send you excess kids meals’ toys, right? But actually it will most likely be shares of a subsidiary – such as when RFM announced it will givce 1 PTI share for every 77 RFM shares.

Personally I don’t like property dividends. But if you’re investing in a stock for a different reason other than the dividend, this isn’t a bad “bonus”.

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photo credit: JeneaWhat via photopin cc

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