"Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.
When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend." - Wikipedia.
There are 3 types of dividends that you should know:
1) Know their declaration date. It is important as the company will pay the dividends on that exact day.
2) Record date. The company that are declaring the dividends will have to compile all the informations to the shareholders.
3) Ex-dividend date. It allows the investors to catch the last bus up for the dividend payments. It will allow the pending transactions for stock bought to clear before it cashes out money to all shareholders.
So, why buy stocks that gives out dividends? One, it is bonus money. Secondly, it is low risk as these companies are strong, stable and mature companies. They have alot of cash reserves. As their cash reserves grow, debts going low, value is going higher and higher, its all a win-win situation for all.
There are people who try to get in the wagon just in time before the announcements of dividends, they buy it before and sell it right after collected the dividends. Why not, right? You will get extra pocket money at no cost at all. Keep dreaming!
This usually doesn't work, because the stock price usually adjusts immediately to reflect the dividend payout, as interested buyers know the stock no longer includes the current dividend payment and they adjust the amount they're willing to pay accordingly.
