When you practice value investing, and start to purchase stocks, you will likely expect a nice dividend check at the end of the year. This isn’t necessarily the case. Dividends can be paid in a variety of ways and at various intervals e.g. Singapore REIT payouts could be based on quarterly while some ETFs could be based on half yearly basis. Some shareholders can actually be paid before others. In this article, we will look at the various types of dividend and how they are paid out.
What Are The Types Of Dividend?
1. Cash Dividend
The type of dividend that we are most familiar with are regular cash dividends. This is the profit that is paid out to the company owners, or in other words the shareholders. Some companies have two types of stock. These are common stock and preferred stock.
Any corporation paying out cash dividends must pay the preferred stockholders first. The preferred stock price is usually set where as the common stock price is determined by the board of directors. Before purchasing any stock in a corporation, you should be aware of you have purchased common stock or preferred stock. It could make a big difference in how much payment you receive.
2. Property Dividend
Some companies actually pay out in property dividends. This doesn’t refer to land or money but tangible, tradable goods. This can be anything from the shares of a company, or its products or other forms of assets. These are given at market value on the declaration date.
3. Special Dividend
Finally, a company may at times pay out special one time dividends. These are rare and can be the result of a legal victory or a corporate reshuffle or under an exceptional circumstance. One good example that i could think of for such special dividend payout was in March 2016 for Saizen Real Estate Investment Trust. The reason was due to asset liquidation.
The share price of SAIZEN REIT on 10 March 2016 (Prior to Ex Dividend) was $1.115 and the payout to shareholders was $1.056 Tax Exempt. This special cash distribution payout is close to its Net Asset value!
Holy Cow….this was a huge windfall making its value investors happy. For people who acquired this stock with a thought of “undervalued buy” at very cheap price after the payout, it might turned out to be a nightmare. That stock was subsequently de-listed due to no further development. So…be mindful even if a stock used to be a darling stock before.
|SAIZEN REAL ESTATE INV TRUST|
|Particulars :||SGD 1.056 TAX EXEMPT|
|Ex-date :||11 Mar 2016|
|Buy-In Last Cum Date :||15 Mar 2016|
|Record Date :||15 Mar 2016|
|Date Paid/Payable :||28 Mar 2016|
From IRAS perspective, these special dividends are considered tax free. These one time dividends are not looked upon as company profit but a return of investors money. Thus, this makes them exempt from IRAS taxes
When investing in a company, you must know the type of stock you hold and the types of dividend payout. Be aware of the difference between common and preferred stock so you’re not disappointed when the company decides to pay out. Be sure you know what you will be paid in as well.
Lastly, if you notice the annual dividend yield of a stock is unusually high say above 20% or even higher, it could be due to one time dividend payout under exceptional circumstance.
Value investing can be a good way to build a solid financial future. Those that take their time and invest wisely can make significant profits over the long term.
Value Investing Singapore | #valueinvestingsingapore #valueinvesting