Table of Contents
What are dividend stocks?
Dividend stocks can be stated as the companies which are top listed share their dividends to their shareholders. It is a great way to diversify a portfolio that they provide with a strong base for passive income.
DIVIDEND: it is explained as the reward that is given to the shareholders, they can be in the form of cash, assets, cash equivalent, shares. Its source is the Net worth of the company. This is of 2 types
- Special dividend – this is paid on common stock and can be provided in particular conditions.
- Preferred dividend – this is provided for specific stockholders and is quarterly paid, it serves more like a bond.
To choose dividend stocks there are important pointers
- The company must possess at a minimum of 50% of the dividend payout ratio.
- Dividend stock must be 2% to 6% and above.
- The company must have a promising record in paying off the debts and providing dividends.
- The dividend yield is less than 20% it means that it is unsustainable.
Dividend yield = Annual dividends per share / Dividends per share
How does it work?
Dividends are given to stockholders to share the profits and it is among the ways that investors earn a return by investing in a stock. But not all stocks pay dividends. A Dividend is paid as per the share of the stock ( if someone owns 15 shares and the company provides an annual dividend of $2 then the person receives $30 as an annual income).
Types of dividends
- Cash dividends: It is the most common type of dividend. The company then provides cash directly into the stockholder’s brokerage account.
- Stock dividends: Companies sometimes choose to pay shares of stock rather than paying money.
- Dividend Reinvestment Programs (DRIPs): Stockholders can utilize DRIPs and reinvest the dividends into the same company with discounts.
- Special dividends: This type of dividend is termed special because the company accumulates the profits for several years for which there is no immediate necessity and then distributed to the investors.
- Preferred dividends: This type of dividend is considered more like a bond than a stock. Usually, dividends are quarterly paid to the investors, unlike preferred stocks which are mostly fixed.
How and how often the dividends are paid?
The dividend payment is usually dependent on the company but most often they pay quarterly and some as annually and also discretionary upon discussion with the investors and stockholders.
The three dates of dividends that are most important to know are
- Declaration date: The date on which the company declares to provide dividends to the investors.
- Ex-dividend date: The date by which the investors need to apply for the dividend and need to hold the stock before the date and be eligible to get dividend if the investor not applied by the Ex-dividend date then considered as not qualified for dividend.
- Payment date: The date on which the company pays the dividend into the investor brokerage account.
How do you evaluate a dividend?
- Dividend per share (DPS): this is the calculation of the dividend amount distributed for each share of stock by the company.
- Dividend yield: It is defined as the measure of the company’s annual dividend by the stock price on a particular date.
- Dividend payout ratio: The ratio of the whole amount of paid-out dividends to stockholders to the net income of the company. It is easily said as
- Paid out ratio: (The retained amount of money is used to pay off the debts or reinvest).
Top 10 Best Dividend Stocks in the UK
1. BP plc
It is a British multinational oil and gas company, it is one of the largest seven oil and gas supermajor companies. ( Headquarters is in St. James’s, Westminster, London) It has a dividend yield of 4.60%.
3. GlaxoSmithKline (GSK)
It is a British-based pharmaceutical company along with research and development, it has huge expansions with the emerging market. The centers are located in the US, Belgium, China, UK. It has a dividend yield of 5.46%.
4. Aviva plc
The principal segments of the UK and Ireland are activities related to Life insurance, Long term health insurance, accident insurance, pensions, savings. It is the largest body for investments and holds a lot of shares. It has a dividend yield of 8.30%.
5. Polymetal International plc
It is the leading metal mining group with a great portfolio of Gold and Silver. It has the largest 9 mines worldwide. It has a dividend yield of 5.77%.
7. British American Tobacco (BAT)
The world’s largest tobacco operating group. It has a wide range of brands like Dunhill, Kent, Lucky strike ..etc. It has a dividend yield of 7.70%.
9. M&G plc
It is the leading savings and investments operation and it also manages investments for both individual and industrial investors like pensions, funds worldwide. It has a dividend yield of 7.55%.
10. Imperial Brand
It is the largest tobacco selling body and holds a large number of famous brands like Davidoff, West Gauloises Blondes, Montecristo. It is known as the world’s largest tobacco VIRGINIA (hand-rolling) selling and DRUM (fine-cut tobacco). It has a dividend yield of 8.63%.
By the above-given information, the dividend stocks can be invested by concentrating on the important pointers and must concentrate on the sustainability of the company because the dividend if it is less than 20% then it shows as the company standards are not well and unstable there is the chances of call off the dividend stocks or share value can be ended at a loss so while investing the groundwork and knowledge over shares and marketing is important.