Most people who buy company shares do so to earn dividend. Ofcourse, it is common reward for investing. But there’re certain facts about dividend you probably didn’t know. Here 5 key things to know about dividend payment.
#1. Dividend is a share of profit
Dividend is the proportion of the year’s profit that a company pays to ordinary shareholders. Ordinary shareholders are generally part owners of the company. They are the risk takers in that they stand the risk of losing their entire investment should the company go under.
In contrast preference shareholders receive their dividend whether the company makes profit or not. Preference shareholders are paid fixed amount of return and it is payable whether or not the company makes a profit. And in the event of the company going under, preferred shareholders’ investment must be paid in accordance prevailing legal provisions.
#2. Companies Can Only Pay Dividend Out of Profit
Dividend is a proportion of the profit a company pays its owners. Thus, it follows that if profit is not made, shareholders should not expect to receive dividend.
That’s why it is important that when considering a stock to buy, a potential investor should look at the past dividend history. ‘How often does this company pay dividend?’ and in what proportion, are questions your research must provide answers to before you decide to invest in a company shares.
#3. Not all companies pay dividend
As we have identified in previous paragraphs, companies pay dividend out of profits. This means that companies that are not making profits are not likely to pay dividend.
Stocks of companies that consistently pay dividend are often described as dividend stocks. Thus, if you are one who is interested in earning regular dividend income, consider investing in dividend stocks.
#4. Dividend Yield
Dividend yield is an important calculation. It’s the value of dividend that a company pays relative to the market price of the shares. Savvy investors use this ratio to evaluate returns on their investment when compared to other alternatives.
#5. Not all Investors May Qualify to Earn Dividend
If you buy a company shares within the ex-div date, you will not receive the dividend because, the registrars must have closed the register of shareholder by this date.
So when you are buying a stock, pay attention to the dates. There are four important dates when it comes to dividend payment. These are:
Declaration Date – That’s the date the company announces that it will pay dividend to shareholders. Such announcement will state the amount of dividend payable, the payment date, and the closure of register date.
Payment date – This is the date the actual dividend will be paid or distributed to qualifying shareholders
Qualification date – This is the date or interval within which the registrars will keep the shareholder register open. This is done to allow the register be updated with the movement of shares amongst buyers and sellers.
Closure Date – This is the date the Registrars of the company will close the register of shareholders for the payment of dividend.
Only shareholders whose names are on the register on the date the records is closed are qualified to receive the dividend.
Thus, if you bought a stock and expects to receive the dividend, don’t sell till after the closure of the register. If you did, you will be selling ex-div (i.e without the dividend). The person who bought the shares from you will receive the dividend.
Other Important Things to Know About Dividend Payment
How Companies Pay Dividend to Their Shareholders
The Registrars of a company is responsible for the management of shareholders information. The keep the register of shareholders, update the records, and distribute dividend.
Dividend is usually a cash distribution paid directly to shareholders bank account. At a time, payment used to be in the form of dividend warrants which functions like a cheque.
The warrants were sent to shareholders via their postal addresses. On receipt, the shareholder lodges the warrant into his bank account for clearing.
However, due to increasing incidence of unclaimed dividend, Registrars now adopt direct credit of dividend into shareholders bank account.
In Nigeria, where direct distribution of dividend is somewhat a recent distribution, registrars still send dividend warrants. However, the regulators are working towards achieving a total direct distribution of dividends to shareholders bank account.
In this regards, the market is currently implementing the e-dividend mandate policy which requires all shareholders to update their bank records with their respective registrars.
Implementing the e-dividend mandate program ensure you receive your dividend each time your company pays it.
How to go about it? Collect the forms from the registrars or download same from their website. Complete the form and supply the necessary information such as your name, account number, etc and return to the registrar with a copy of your passport photographs.
The Registrars will thereafter update your records and you will begin to have your dividend directly credited to your bank account. You can also return the completed form to your Bank. Your bank will upload same to the EDD platform from where the relevant registrars will pick the form and do the needful.
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These are some of the things you should know about dividend payment
Part of our investment support service is to help investors liaise with stockbrokers and registrars to open cscs account and resolves dividend issues.