Investing in dividends, what are they and why trust them?
Dividends are that part of the corporate profits that a company assigns to its shareholders, as long as its management does not decide to reinvest them completely, although this option is not usually common, it is normal for the company to reinvest a percentage and the rest It distributes it among its shareholders, either in the form of cash, or in the form of more shares, or with both ( scrib dividend ).
It may also be the case that said company is in a phase of strong expansion, in that case, it will reinvest the profits completely, but in return the shares will increase considerably in value, thus rewarding the shareholders.
Investing in dividends is a common practice that benefits the shareholder as long as the company is solvent, has good profitability, capacity for future growth, capital appreciation and a stimulating pay-out (percentage of the profit it dedicates to its shareholders), it is that is, between 30 and 60%. In this way, the options to achieve higher returns at lower risk are multiplied.
More details to consider before investing in dividends
We offer you some more keys to understand what dividends consist of and what we should stick to if we decide to invest in this financial product.
- Interim dividend vs complementary dividend. The first refers to the part that is delivered to the shareholders as an advance on the expected final results, the second is added to the first once the final amount to be distributed as a dividend has been determined.
- There are ordinary dividends, from the distribution of profits obtained from the business activity itself, and extraordinary dividends, derived from additional or exceptional shares, for example, the sale of a premises.
- Companies usually close their annual accounts in the month of December, then calculating the profits or losses suffered during the last period, it is at that time when the company, specifically the General Shareholders' Meeting, must decide how much of these profits it is going to distribute among its shareholders.
- The collection periods will depend on each company and must be officially declared by the Board of Directors of the same.
- Since 2015, all shareholders are required to declare the dividends obtained on their annual income statement.
- Like any operation that involves investment in the stock market, dividends carry certain risks, in fact, we can end up with less capital than invested.