As a shareholder,
you can often expect a regular dividend (see Day
5) from your shares. This represents a payout
from profits to shareholders. Most large quoted
companies pay a dividend and many small ones do
not, and there is no obligation. Growth companies
may find it more useful to reinvest all their
earnings in the business and, if it results in
a soaring share price, the capital gain for investors
may outweigh the dividend income that might have
been.
When a UK company makes a dividend payout, it
is twice a year and, in the United States, quarterly.
It rises a little as Dividend Day approaches,
but falls back after the dividends have been distributed
and the shares become ex-dividend.
Institutional investors feel comfortable with
a steadily rising dividend and, if the momentum
stops, they will query it. If a company goes so
far as to cut its dividend, it is taken as a warning
sign.
Your online broker should put any dividend payment
straight into your account, and you can check
online that it has been done. At the end of the
financial year, the broker will send you a consolidated
dividend tax certificate.
