Dividend-paying stocks may not be the most exciting investments on the block – but steady businesses that make regular payouts are what really make investors money over time.
As my Investment U colleague Mark Skousen writes in his book EconoPower, “Earnings may be suspicious due to creative accounting. Revenues can be booked in one year or several years. Capital assets can be sold and the value listed as ordinary income. But cash paid into your account is a sure thing, a litmus test of the company’s true earnings. It’s tangible evidence of the firm’s profitability.”
Here are some key terms to understand when investing in dividend-paying stocks:
• Declaration Date – The date on which the board of directors of a company announces the amount of the next stock dividend and its ex-dividend date, record date, and payment date.
• Ex-Dividend Date – The date on which the stock trades without a dividend. So if you buy the stock on or after the ex-dividend date, you will not receive the next dividend. If you sell the stock before the ex-dividend date, the buyer – not you – will receive the dividend. If you sell after the ex-dividend date, you – not the buyer – will receive the dividend.
• Record Date – The date on which the company determines the list of shareholders who qualify for the stock dividend. To be a shareholder of record, you must own the stock at least one day before the ex-dividend date.
• Payment Date – The date on which the stock dividend is paid to shareholders of record in the form of a dividend check or a credit to their account.
Adding dividend-paying stocks to your portfolio could be just the ticket for the steady growth of your bottom line.[Ed. Note: Alex Green is Investment Director of The Oxford Club and Chairman of Investment U – a free source of impartial, no-nonsense advice on how to build long-lasting wealth. Get more of Alex’s powerful wealth-building ideas right here.]