Dividends - What Are They?
When calculating their profit on stocks, many investors calculate their profit either on the stock's appreciation on the open market or on the profit they earned after selling the stock for more than the original purchase price. However, it is prudent to add any income received from stock dividends.
Dividends are taxable payments made by a business to its shareholders from its earnings. These payments are typically made from retail profits and are made in cash or shares. They are typically paid quarterly, and the amount is chosen by the board of directors of the corporation.
Dividends are frequently expressed in terms of the cash amount received by each share, or dividends per share. They can also be expressed as a percentage of the current market price, which is referred to as dividend yield. The dividend yield is calculated by dividing annual dividend income per share by the current stock price.
Numerous mature, profitable businesses provide monthly dividends to their shareholders. However, if a firm incurs losses or requires any earnings to be reinvested in the business, it is always acceptable for it to postpone dividends. Economic, market and political events can all have an effect on earnings. It's critical to keep in mind that a corporation might choose to increase, decrease, or discontinue dividend payments at any time.
Rather than paying dividends to shareholders, many companies with current strong growth rates reinvest their earnings. On the other hand, some steady companies with little growth may offer dividends to entice investors to buy their stock.
In terms of taxes, ordinary dividends are taxed similarly to other types of income. Qualified dividends satisfy the conditions for capital gains taxation at the 0%, 15%, or 20% rate (or breakpoint). Higher-income taxpayers should be aware that if their adjusted gross income exceeds $200,000 (single filers) or $250,000 (married filers), they may be subject to an additional 3.8 percent Medicare unearned income tax on net investment income (unearned income includes dividends) (married joint filers).
When investing in the stock market, it's critical to keep in mind that stock returns and principal values fluctuate in response to changing market conditions. When shares are sold, their value may be greater or lesser than their initial cost.
Speak with one of our financial professionals to learn more about dividend income, yield, and reinvestments!
The material on this page reflects PG Capital's professional opinions as of today and is subject to change. The information presented here has not taken into account any particular investor's investment goals or needs, and investors should not base their investment decisions entirely on this material. Past performance is not a guarantee of future results. All investments involve some amount of risk, and investors have different time horizons, goals, and risk tolerances, so consult with your PG Capital Financial Advisor before proceeding.