Sunday, November 30, 2008

Dividend stock--- low risk investment in stock market

Dividend is a payment made by the company to the share holders. When a company earns more profit, they can either re-invest that in business or distribute it among the shares holder as dividend. It can be either or both. Means, a corporation can re-invest half of the profit in business and distribute the other half. The dividend offer by company is usually paid out quarterly.

There are different forms of dividend payment.

Cash: In this case you will receive a check for your dividend amount form the company.

Stock: Here you won't get cash, but get additional stock shares as per your dividend amount.

When you get dividend in cash, it's taxable, but in the case of stock tax is charged only if it get sold.

There must be a declaration date on which the Board of Directors announces dividend. On this day, the Board will also announce the dividend's size, ex-dividend date and payment date. Once the dividend is declared, the company is legally liable to pay it. The declaration date in U.S. is on the third Friday of the listed month, however it may fall on Thursday, in case there is a holiday on Friday.

As a beginner we should look for the stocks with minimal risk of dividend cuts and other negative factors with high probability of dividend getting increased. Always looks for stocks which has more than 3 percent dividend yeild and also look for the companies with low-debt.

If you are looking for a low risk investment in dividend stock, check the companies record for last 5 years if they are paying dividend every year. Also pay attention to companies earnings growth.

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