The dividend stocks is a payment made by a corporation to its shareholders, usually as a distribution of profits.When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of the profit as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase. The dividend stocks is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding. For the joint-stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholders’ equity section on the company’s balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. on the other hand, allocate dividends according to members’ activity, so their dividends are often considered to be a pre-tax expense.
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Dividend investors often prioritize a stock’s yield above all other factors. While it’s certainly important, it’s also important to examine five other key factors -- payout ratios, earnings growth, free cash flow growth, valuations, and historical dividend hikes. A stock’s payout ratio is the percentage of a company’s earnings which are allocated to dividend payments. The lower this percentage is, the more room a company has to grow its dividend. If the payout remains above 100% for some quarters, the dividend is likely unsustainable. Lastly, some stocks have high yields but don’t raise their dividends annually. A company doesn’t need to be a ’dividend aristocrat’ that has raised its payout for over 25 years, but a strong record of dividend hikes indicates that it’s dedicated to rewarding long-term, buy-and-hold investors with a consistent cut of its profits. If you’re looking for solid income from dividends, look no further. The Motley Fool’s top dividend analyst, who leads our dividend stock newsletter, Income Investor, just picked what he believes are the best income stocks in the market right now. These dividend cash cows could be the latest in a long string of market-beating stocks Income Investor has picked over the years.
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