Dividends are money that you are entitled to receive when you own certain investments. However, there are so many people who disregard this source of income because it starts off being such small amounts. But, over time these dividends can add up to becoming some substantial dollars for you so you can’t underestimate the value of receiving these funds.
Dividends are the money that is distributed to you when you own a common stock, a mutual fund, a whole life insurance policy, an annuity and a few others. Since not all investment products pay dividends this applies only to the companies that do. However, in order to receive these dividends, you must own the stock on this special day called ” the record date”.
Once you’re on the book’s of the company you are entitled to receive a share in the profits of the company and they distribute these funds by paying you dividends.
These dividend funds will continue to be distributed to you while you own these products and that is what I like the best about dividend income, it happens automatically.
Hence, if you are receiving dividend income you have made a wise decision when you purchased your investment product. At the time of the purchase, you asked the most important question and that is does this product pay dividends?
This is the question every investor should ask when they are buying an investment product if they are looking for some additional funds on their investment dollars. Although some people buy for growth and not for dividends, that can be your choice but I’m not one of them. I want my money to work for me and earning dividends is what works best for me. When you start receiving this dividend income you would appreciate how important it is in getting those additional dollars.
In doing so, you also put yourselves on a path towards accumulating more money for you in the future and that is good. You are also ahead of the curve on a lot of people as they don’t look at dividends as being a big deal and they are mistaken.
I’m extremely happy about receiving my dividends as it is coming handy to cover my rising living expenses. Plus, when you get older you will discover like I did that in receiving dividends it can make a big difference in helping to balance your budget.
In receiving dividends it also plays a very important part in adding value to your retirement portfolio. This happens because if you choose to don’t take the cash dividends that are paid to you, but to reinvest the dividends to buy more stock this would help your portfolio to grow faster. These reinvested dividends can cause your portfolio to increase significantly over the years which would benefit you more down the road.
This option of reinvesting your dividends is something that I strongly suggest that you do. It’s a very important lesson to learn when you are a young investor and that is to use your money wisely. It’s the key to long-term investing as it gives time for your dividends to grow as you age. As a result, dividends are an important building block in creating wealth for you later on in life and it’s a process that has a proven track record.
How are dividends calculated and distributed?
Dividends are paid out based on how many shares that you own. The calculation is to multiply your shares by the ownership amount. For example, if you own 400 shares and the dividend is 5 cents per share you would get $20. This $20 will represent the annual payment of your dividend.
Dividends are normally paid out on a quarterly basis so you would receive a check of $5 each quarter. However, in receiving a check for $5 it’s such a small amount that there are people who accidentally throw out these dividend checks in error and that is a big mistake. If these dividends checks are not cashed these funds remain on the books of the dividend paying firm.
Did you know that millions of dividend dollars are paid out each year and go unclaimed because people don’t cash these small-dollar checks.? I know about this process as I worked in a department on Wall Street where these dividends checks were either not cashed or returned by the mail as the customer moved and left no forwarding address.
These dividend funds are labeled as unclaimed money if they are not outstanding for 90 days.
These unclaimed dividends funds are subsequently sent to the local government for keeping as a regulatory requirement and as escheated funds. These funds will remain in the hands of the local government until it is claimed. There are currently millions upon millions of dollars in the local government possession and that’s ashamed.
I hope by reading this article, you will become more aware of this information pertaining to dividend income and cash your checks if they are sent to you. However, a better choice is to request that your dividends be reinvested to buy more stock as outlined above. Under this process, you won’t have to worry about receiving these dividend checks in the mail, and your dividend income will continue to grow while you are sleeping just like me.
Finally, you must remember that these dividend funds are your money and it’s better to be in your pocket than to be in the pockets of the dividend paying company. In a period where we are all looking for some extra bucks, missing out on collecting your dividends is an unnecessary step and I wouldn’t do so if I was you.