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What Are Dividend Stocks?

One comes across a number of important terms in investing. It becomes important to know their right meaning to make the most of any investment plan. Stocks and dividends are related.

So, what are dividend stocks?

If the company's availability of liquid cash is in short supply, companies may choose to dispense stock to shareholders of record. Stock dividends are paid as additional shares of stock rather than as cash, in simple terms. These are called dividend stocks.

These dividend stocks distributions are generally acknowledged in the form of fractions paid per existing share. For example, a company issuing a stock dividend of 0.06 shares for each single share held. If dividends paid are in the form of cash, those dividends are taxable. But when a company issues a stock dividend, rather than cash, then there are usually no tax consequences until the shares are sold.

Dividend stocks become payable only when sanctioned by the board of directors. They are usually declared at regular intervals. Obviously, dividends can not be paid unless the company has made a profit or surplus. The accumulated profits of a company are to be retained for reinvestment in the business. Many companies pay stock dividends quarterly whereas, some companies do not pay dividends stocks.

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