Ordinary Dividends: A Beginner's Guide to Stock Income

Understanding the importance of ordinary dividends is one of the most critical aspects of stock trading. Here are the basics of ordinary dividends and what they can do for you as an investor.

Ordinary Dividends

An ordinary dividend is a payment that is made by a corporation to its shareholders. This payment is a way to distribute part of the profit of the company to the investors. These ordinary dividend payments are distributed periodically but are not required. Many companies will distribute dividends quarterly or annually; however, some companies will distribute them on a monthly basis. Companies will typically distribute dividends in order to increase investor confidence and show strength. When a company experiences a bad financial quarter, they may decide to postpone distributing a dividend.

Investment Considerations

This represents a significant benefit to investors. You can receive dividend income regularly, regardless of how high the price of the stock is. Many people invest in a portfolio of stocks that pay dividends in order to create a regular income for themselves. When investing in these types of stocks, you should realize that you will have to pay taxes on dividends at your regular marginal tax rate. Therefore, dividends are typically going to cost more in taxes than capital gains do.