Canadian Dividend stocks



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If you are an investor in Canada, you will surely know what a dividend is. Anyways if you do not know what it means and are new to the investment business, this article will give you a brief view of Dividend stocks. We will start at the very basic level with shares or stocks. Investors make investment in companies with these instruments called shares. Shares help you get the ownership of the company to the extent of number of shares you own from the total number of shares of the company. People invest in the companies to get good returns in form of dividends while a company floats the shares in order to raise funds.

You might want to consider a Dividend Mutual Fund.

Dividend is the payment made by the company to the shareholders/stockholders of the company. It is the share of after tax profit in cash distributed by the company to its stockholders. Sometimes this profit might not be distributed among the stockholders but reinvested in the company for its growth and expansion.


Now that we know what cash dividend payments are, let us discuss what dividend stocks are. Dividend payments to the stockholders that are in terms of stocks and not in terms of cash are called stock dividend. The stocks or shares are proportionately distributed among the shareholders.

 

There are certain benefits of stock dividends over the cash dividends. The stockholder does not have to pay any tax on the stock dividend. But on cash dividend the stockholder has to pay tax in the financial year. The stock dividends also increase the ownership of the stockholder which means more profits for future. On the other hand the company could retain the earnings and invest it on new projects or expansion. It is a savior for companies who are faced with liquidity crunch and cannot pay out cash dividends.


But there are certain disadvantages of the dividend stocks too. While cash dividend is like a regular income for you, stock dividends are not. If anything goes wrong with the company and prices of stocks fall to a very low level, the investors will lose more than they would have if they would have received timely cash dividend. The another risk involved is if the company runs out of investment options and still keeps conserving the cash, it would lead to losses in future. After all making investment in poor projects or keeping the money idle does more harm to a company than any good!


Hopefully this would have given some clarity on dividend stocks.