Share dividends: calculation, how and when to receive

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Many people dream of living on passive income - you don't work yourself, but the money drips. There are several ways to do this: rent out real estate, register a patent for an invention or copyright a book. There is another way: you can buy shares - a share in the business and receive dividend income.

What are stocks?

In our country, buying a stake in someone else's business is not very popular. According to statistics, only 2% of the population owns any kind of shares. For comparison, in the US, shares, and several companies at once, are owned by every second housewife.

In our country, it is customary to keep savings in a bank, on deposit. And few people think that it is much more profitable to become a co-owner of this business. For example, anyone can buy shares in Sberbank or VTB.

In simple terms, a share is a piece of paper that gives the owner the right to part of the company. Although paper stocks are a thing of the past. They could have been bought 20 years ago.

Today all data aboutshareholders are stored electronically. Every minute, thousands of people buy and sell stocks online from their computers at home.

Why do companies issue shares and how can investors make money on them?

The company receives a constant inflow of cash that does not need to be paid back. However, from that moment on, it becomes public, and a number of restrictions begin to apply to its activities.

The controlling stake is in the hands of the owners who run the business. The rest goes to the "free sale". Thus, anyone can buy a piece of Gazprom, Google or any other company whose shares are traded on the stock exchange.

However, this does not mean that an ordinary investor will be able to influence management and decision-making - as a percentage of the total number of shares, his stake is too small.

In the past, buying or selling shares was a complex procedure on the trading floor of the stock exchange. Today, anyone can buy or sell a part of a company via the Internet, with a few mouse clicks. To do this, there are intermediaries in the market - brokers.

They transmit real-time quotes - the cost of a particular stock at the current moment. To buy or sell an asset, simply click the appropriate button in your trading terminal.

Stock prices are constantly changing. If there are more buyers, the price goes up. As soon as the sellers take over, it falls. And it happens all the time.

Here is the difference in stock prices andspeculators earn. However, investors prefer to receive a stable passive income, rather than playing on the difference in rates.

It is generally accepted that the value of "blue chips" - companies such as Google, Coca-Cola, Gazprom and Sberbank - is constantly growing in the long term. And this is not the only opportunity to earn. Shares give the right to receive dividends.

Companies make profit every year and part of it is distributed among shareholders - they pay dividends. For example, in 2012-2016, dividends on the shares of Sberbank and Gazprom were rumored. This is the income that investors seek to receive.

Why is it beneficial?

Stocks rise and fall. Practice shows that in the long run the chances of guessing are 50/50. Investors believe that such monsters as Coca-Cola or Google are unlikely to go bankrupt in the short term. Therefore, the value of their shares will not fall to zero. Sooner or later, the rate will start to rise again, which means that the money is safe.

It follows that dividends are a stable and safe source of passive income. Moreover, its size depends on the number, and not on the price of shares. You just need to choose a company in which you will be confident.

Let's explain with an example. Let's say you need to invest 1 million rubles. Let the selected share cost 100 rubles. Accordingly, you can buy 10,000 shares. Imagine that the company decided to pay dividends - 5 rubles per share. Then the investor's income will be 50,000 rubles.

The share price fell to 50 rubles apiece. Now the same amount can buy 20,000 shares. Accordingly, dividend income will amount to 100,000 rubles.

As you can see, the depreciation is even beneficial for those investors who invest on a permanent and long-term basis, not counting on instant earnings.

This strategy, in particular, is used by the richest investor in the world - Warren Buffett. Among other things, he is famous for buying shares in order to never sell them.

Common and preferred shares

The same company can issue two types of shares: common and preferred.

Ordinary shares en title the holder to:

• participate in making key decisions - the weight of an investor's opinion is directly proportional to the number of shares he owns;
• receive dividend income if it is paid;
• receive a share in the company's property in proportion to the number of shares in the event of its liquidation.

The decision on the distribution of part of the profit for the payment of dividends is made by the board of directors and the meeting of shareholders, which determines the amount of dividend per ordinary share.

Unlike ordinary shares, preferred shares guarantee the holder a fixed income in the form of dividends, regardless of the opinion of the board of directors. However, such shareholders cannot participate in decision-making on the management of the company. They do not participate in the general meeting of shareholders either.

An important advantage of privilegedshares

It is important that when a company is liquidated, preferred investors will receive money from the sale of its property before everyone else. This guarantees the return of at least part of the invested funds in the event of bankruptcy.

And such insurance is not superfluous at all. As practice shows, even the largest companies can suddenly go under. History knows many such examples. Suffice it to recall Lehman Brothers, Enron and General Motors.

There is an opinion that the return on the price difference will be higher if you buy ordinary shares. However, here the investor has no guarantees. The share price can rise or fall at any time.

Receiving a fixed dividend income, the holder of preferred shares insures himself against these risks. A smart investor invests during a downturn by buying more shares for the same amount. The lower the rate falls, the more shares the investor will buy. And the higher his dividend income will be.

How to calculate the dividend per share?

What are stocks is understandable. To move on, you will have to familiarize yourself with two more terms: the par value of the share and the dividend.

What is the par value of a share?

The par value of a share shows the amount of money attributable to one share in the authorized capital. Let's say the authorized capital of the company is 100 million rubles. In total, 100,000 shares were issued into circulation. Accordingly, the nominal value of the share, or face value, is 1,000 rubles.

However, this does not mean that the stock is currently trading at this price. Stock price on the stock exchangemay be higher or lower. This is the so-called market price, which is formed by the balance of supply and demand.

What is a dividend?

Dividend - the amount of profit that the company decided to share among shareholders, attributable to one share. Let's go back to the previous example. Suppose the company decided to share between shareholders 5% of the profit, the amount of which amounted to 30 million rubles. Then the total amount of dividends will be 1.5 million rubles.

The rate at which the dividend paid per share grows determines the growth rate of the share's dividend.

If you divide this number by the total number of shares outstanding, you get the amount of dividends per share, which will be 15 rubles.

Dividend and share value are important in the initial issue. Let's go back to the previous example. If this was the first issue and the shares were purchased at a nominal price of 1,000 rubles per share, then the return on invested capital was 1.5% per year.

Which is more profitable: a bank deposit or dividends on Sberbank shares?

Which is more profitable: to put money on a deposit in a bank or to become a co-owner of this bank by buying its shares? Let's say you need to invest 1 million rubles. Let's see what dividend income would have been received by holders of ordinary and preferred shares of Sberbank in the period from 2012 to 2016:

Year	Dividends on ordinary shares, rubles	Dividends on preferred shares, rubles
2012	20800	25 900
2013	25 700	32,000
2014	32,000	32,000
2015	4 500	4 500
2016	19 700	19 700
Total:	102 700	114 100

During this period, the cost of ordinary shares increased by 120%, i.e., by selling them, the investor would receive 2,200,000 rubles. At the same time, the value of preferred shares increased by 101%. The investor's income from their sale would amount to 2,010,000 rubles.

Thus, an investor who invested 1,000,000 rubles in ordinary shares of Sberbank in 2012 would receive 2,302,700 rubles in 2016. Preferred - 2,124,000 rubles.

Now let's compare this with a standard deposit in the same Sberbank, the average yield of which over this period was 10% per annum. It is easy to calculate that in 2016 the investor will receive back only 1.5 million rubles.

The difference is obvious. And if we take a period of 15–20 years and take into account real inflation, then the investor will lose most of the investment on the deposit. But the money invested in shares, on the contrary, will increase by an order of magnitude.

When do stocks pay dividends?

Companies usually pay dividends at the end of the financial year. However, there are also intermediate payments: once every six months or even once everyquarter. The procedure for distributing profits and paying dividends is enshrined in the founding documents.

At the same time, the decision to pay dividends on ordinary shares is made by the board of directors of the company, based on current indicators.

Holders of preferred shares are more fortunate in this sense. They can count on a fixed income, regardless of the opinion of the board of directors and the current situation.

Is it possible to change the percentage of profit that is paid out as dividends on preferred shares? Yes, if you make changes to the Charter of the enterprise.

How and where do they receive dividends on shares?

Payment of dividends occurs in 3 stages:

• company publicly announces date and amount of dividend payment;
• shareholder register closes - to be guaranteed to receive a payment, it is worth buying shares at least 3-4 days before this date;
• dividends are paid, after which the share price tends to fall.

Usually, the shareholders' meeting takes place in the spring or early summer - in Russia, the period from May 1 to June 30 is set by law for this. At this meeting, the amount of dividends and the date of closing the register of shareholders are determined. Moreover, according to the law of the Russian Federation, it cannot be less than 10 days and more than 20 days from the date of the meeting.

Beginner investors often wonder how to get stock dividends? If you bought through a broker, you do not need to do anything. Money will simply be credited to the account.

The owners of "paper" shares also worrynot worth it. The money will be credited to your bank account or plastic card. For example, if an investor purchased Gazprom shares in Gazprombank, he will receive dividends on the card of this bank.

Money will not be transferred in one day. By law, payments can take up to 25 days from the registry closing date. The holders of preferred shares are paid first. And only after them - the rest of the shareholders.

Do I need to pay taxes on dividend income?

When receiving dividends, you will have to pay a tax of 13%. The broker in this case acts as a tax agent. The amount will be credited to the account, minus the tax paid by the broker.

However, investing in stocks is safer and more profitable than a bank deposit because the price of stocks is constantly rising in the long run, and high inflation only contributes to this. Moreover, you do not need to pay tax on this “paper” profit until it is realized, that is, until the investor sells the shares.

Besides, even if the price falls, the investor will not incur a loss until he sells the shares. On the contrary, he can take advantage of the low price and significantly increase his package.

Summarize

As a rule, dividend income does not exceed 5-10% per annum. However, investing in stocks is more profitable than keeping money in the bank. The real level of inflation in Russia is still high. This contributes to the growth of the share price. This is the main profit from such investments. And dividend payments are a nice bonus.

To receivedividends need to be held on the shares at the closing date of the register. You don't need to do anything else - the money will be credited to your brokerage account. Even the broker will pay the tax for you.

In Russia, dividends are paid in the summer. Moreover, no more than 25 days should pass from the date of closing the registry to the transfer of funds to the account.