Candlestick Trading Blog

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These are payments that are made by a corporation to it shareholders and typically include a portion of the companies earnings. Companies can either reinvest their profit or surplus back into the company or pay it to the shareholders. They typically retain a portion of their earnings and then pay the remainder to their shareholders on a cash basis. Investors must research the companies that they are interested in investing in to find out their earnings estimates as well as additional information about the companies to see if they are a good investment.

There are different forms of payment in addition to cash such as stock, property, other financial assets, and more. We will discuss each of these forms of payments and investment options below.

Cash – Cash dividends are the most common form of payment and are paid in the form of a check. It is considered investment income and is taxable to the recipient the year they are paid. This is the most common method of sharing corporate profits with the shareholders of a company when investing money.

Stock or scrip dividends – These are paid out in the form of additional stock shares of the issuing corporation. Sometimes the subsidiary corporation pays it out. They are issued in proportion to the shares owned and if the payment involves the issue of new shares, it is similar to a stock split. This means that the total number of shares increases while the price of each share is lowered. The total value of the shares held does not change and the market capitalization stays the same as well.

Property – These are paid out in the form of assets from the issuing corporation. (Read about asset protection and asset allocation). These can also be paid out by the subsidiary corporation as well. This form of payment is pretty rare and tends to be securities of other companies owned by the issuer. They can take other forms also such as services or products.

Financial assets – financial assets with a known market value can also be distributed to shareholders. They are used in structured finance and warrants are sometimes distributed this way.

As mentioned above sometimes subsidiaries of companies will make the payments to shareholders. This is known as "spinning off" and it occurs when the parent company distributes shares in the new company to the old company's shareholders. The shares are then typically traded independently.

Continue to learn how to invest and explore different investment options to see what works for you. Explore technical analysis and day trading, or perhaps commodities or foreign currencies to see what fits your personality. Investment knowledge is the key to success so be sure to do your homework and find an investment option that suits you.