Dividend stocks

Dividend stocks: a way to build a passive income

Dividend stocks

Dividend Stocks

What are dividend stocks?

Dividends stocks are stocks of companies that share the profits  with their shareholder. So let’s say company A had made a profit. Let say the profit is 100 USD. And let’s say that company A have only 100 stocks standing out on the market. They decide that want to share ( which is often called as distribute) the 100 usd profit to the 100 stocks. So this means if you had one stock of this company A, then you will get a dividend ( company A’s profit ) of 1 USD. If you own ten of these stocks then your dividend would be 10 USD.

Type of dividend stocks

There are many types of dividend stocks. I will just discuss the most popular types with you.

1. Normal Growth Stocks

Normal growth stocks are stocks of companies that are focusing in growing their business. Most of the time they give you very little dividends. The reason for that is that company need the profit to invest in growing their business. When they see that they have  too much cash reserve, they are starting to increase the dividend or buy back stocks. This way they increase the value of their stocks. A few examples for growth stocks are Apple, Google, Facebook stocks and so on. These company usually give out dividend once or twice a year.

2. Close end funds

Close end funds are funds that are managed by the managers of a investing fund. Close end funds borrow money or give out in stocks ( to get capital) to invest in companies, stock markets, forex markets and so on. By investing in the right things these managers make profits. And with these profits they share it with their shareholders right away or as soon as possible. Most close end fund give dividends quarterly or monthly. To avoid heavy taxation, these funds share 90% of their profit with their share holders.

3. REIT funds

Reit funds are a bit like close end funds. But the main difference is that these funds are primarily focussed on real estate or mortgages. These funds makes their profit by collecting rent , buy and sell real estate, giving out mortgages and building and leasing of properties.

How to build up a portfolio of dividend stocks?

Before you start working on building your dividend stocks portfolio, you need to make clear to yourself what the purpose is of this portfolio. For example do you want that this portfolio to cover all your life expenses or do you want to replace your income. Once you decide what you want. Then you can start on working building up this portfolio of dividend stocks.

How to manage the risk?

So what is the best way to manage your risk? Before you start buying, make a list of stocks which one has the highest yield, research their business and the market that they are operated in. Don’t put all your money in one dividend company but invest in a few. This way if company A one day reported that they want to reduce the dividend it won’t hurt you hard. ( it will hurt you because you get lesser dividned and stock will lose their value) Because still have company b, c,d that are doing well. Another tip is when you research take a look at the dividend pay out history. If a company miss the dividend pay out often, then I highly recommend you not to invest in this stock or fund.

cfds dividends

CFDs Dividends – How does it work? Find it out here

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CFDs dividends. Did you know that you could get dividends that are paid on shares with CFDs? It is really simple. In this article you will get to know when to invest in cfd’s to get the dividends. And you will find out how the dividends dates will  influences your CFDs dividends position. If you don’t what CFDs are then please read this: CFDs.

CFDs dividends: How does it work?

Before we are going into CFDs dividends let’s check out how the dividends payments work on shares. When you own shares there are three important dates that you must know and remember for the dividend pay out. The first date is called ex-dividend date. If you bought shares before the ex-dividend date then you are entitled to get the dividend. However if you buy shares on the ex-dividend date or after then you are not entitled to receive the dividend.

The second date is called the record date. This date record last three days right after the ex-dividend date. In this period the investor must held their stock position in order to get the dividend. The reason for this is that it takes three days to settle the purchase of shares. The third date is the payment date. Its a fixed date where the company will pay the dividend to their shareholders. Usually this date takes after 2-3 weeks after the record date.

So how does the dividend payments works when you are having cfds dividends on these shares? Let’s say you are trading in these CFDs dividends of a certain share. Now you probably know that there are various charges and credits when you have open a cfd position. The dividend adjustments is one of these credits. Typically, the actual dividend payment made by a company is usually made a few weeks after the ex-dividend date. For instance, XYZ Company might go ex-dividend on the 3rd August but pays the dividend money on the 3th of September, however when owning a CFD dividends position for this period you’ll be credited the dividend on the following business day. Great isn’t? Well it is just one of the advantages of trading in CFDs dividends shares.

CFDs dividends: The influence on price changing

When you hold a long position in CFDs dividends shares, and held it the day before the ex dividend date, then you become entitled to receive a payment equivalent to the amount of the dividend. Remember that you must be in the position before the ex-dividend date to receive the dividend. For instance if the share you controlled through a CFD went ex-dividend on Wednesday, then you will need to have bought these CFDs dividends shares at least on Tuesday to earn the dividend credit.

If you are shorting the CFDs dividends shares then the  situation will be different as you now owe the equivalent of the dividend, and it will be debited to your account. Holding a short position is good in one way, because you get paid interest instead of paying interest on the margin as you do when you are long, but this is one place where you have an immediate apparent loss.Thus, if you are short selling a share or other securities (i.e. standing to gain from the position if the share price falls in value) and you are short prior to the ex-dividend date, then you will owe the dividend.

However the situation is not so clear in reality as it is described above. The reason for this is that  you must also consider is that the share price will change on the ex dividend date to reflect the amount of the dividend, more or less (although some traders make use of a dividend trading strategy to exploit market inefficiencies). On the ex dividend date you can expect the value of the shares to drop by nearly as much as the amount of the dividend, which maintains a level equity for the conventional shareholder.What this means in  is that your long CFDs dividends position might take a hit, even while you are receiving funds for the dividend amount. The short position will make a profit which offsets the dividend debit to your account.

Read more about CFD Trading: How to make money with CFD Trading