Dividends on shares: calculation of how and when to receive

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

What is a stock?

In our country, the purchase of a share in someone else's business is not widely popular. According to statistics, only 2% of the population own any shares. For comparison, in the United States, shares of 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 purchase shares of Sberbank or VTB.

In simple words, a stock is a paper that gives the owner the right to part of the company. Although paper stocks are long gone. They could be bought 20 years ago.

Today, all data on shareholders is stored electronically. Every minute, thousands of people buy and sell stocks over the Internet, sitting at a computer at home.

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

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

A controlling stake is in the hands of the owners who manage the business. The rest goes to "free sale". Thus, everyone 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 the 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.

Previously, the purchase or sale of shares was a complicated procedure on the trading floor of the exchange. Today, everyone can buy or sell part of a company through the Internet, in a few clicks of the mouse. For this, there are intermediaries in the market - brokers.

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

Stock prices are constantly changing. If more buyers, the price rises. As soon as sellers get the upper hand, it falls. And this happens all the time.

It is on the difference in stock prices that speculators earn. However, investors prefer to receive a stable passive income, rather than play on the difference in rates.

It is generally accepted that the cost of “blue chips” - such companies 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.

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

Why is it profitable?

The stock price rises and falls. Practice shows that in the long run, the chances of guessing are 50/50. Investors expect monsters such as Coca-Cola or Google are unlikely to go broke in the near future. Therefore, the value of their shares will not fall to zero. Sooner or later, the exchange rate will begin to grow 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 quantity, and not on the share price. You just need to choose a company in which you will be sure.

Let us illustrate with an example. Let's say you need to invest 1 million rubles. Let the selected stock 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 stock price fell to 50 rubles apiece. Now for the same amount you 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 Buffet. Among other things, he is famous for buying stocks so as not to sell them ever.

Ordinary and preferred shares

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

Ordinary shares give the holder the right:

• participate in key decisions - the weight of the opinion of the investor is directly proportional to the number of shares that are at his disposal;

• receive dividend income, if paid;

• to receive a proportionate share of the company’s property during its liquidation.

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

Unlike ordinary, 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 company management. They do not participate in the general meeting of shareholders.

An important advantage of preferred stock

It is important that upon liquidation of the company, privileged investors will receive money from the sale of its property earlier than everyone else. This guarantees the return of at least part of the invested funds in the event of bankruptcy.

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

There is an opinion that the income from the difference in rates will be higher if you buy ordinary stocks. However, here the investor has no guarantees. The value of shares may rise or fall at any time.

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

How to calculate the amount of dividends per share?

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

What is the par value of a stock?

Par value shows the amount of money per 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. Accordingly, the par value of a share, or par value, is 1,000 rubles.

However, this does not mean that at the current time the stock is being traded at this price. On a stock exchange, the price of a stock may be higher or lower. This is the so-called market price, which forms the balance of supply and demand.

What is a dividend?

Dividend - the amount of profit that the company decided to divide between shareholders per one share. Let us return to the previous example. Suppose a company decided to divide between shareholders 5% of the profit, 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 is growing determines the growth rate of the stock dividend.

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

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

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

What is more profitable: put money on a deposit in a bank or 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 be received by holders of ordinary and preferred shares of Sberbank from 2012 to 2016:

During this period, the value of ordinary shares increased by 120%, i.e., having sold them, the investor would have received 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. In privileged - 2 124 000 rubles.

Now compare this with a standard deposit in the same Sberbank, whose average return for 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 you take a period of 15–20 years and take into account real inflation, then on deposit the investor will lose most of the investment. But the money invested in stocks, by contrast, will increase by an order of magnitude.

When do dividends on stocks be paid?

Typically, companies pay dividends at the end of a fiscal year. However, there are also interim payments: once every six months or even once a quarter. The procedure for distributing profits and paying dividends is fixed in the constituent documents.

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

Holders of preferred shares in this sense are more fortunate. 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 in the form of dividends on preferred shares? Yes, if you make changes to the charter of the enterprise.

How and where do dividends on shares get?

Dividends are paid in 3 stages:

• the company publicly announces the date and amount of dividend payment;

• the register of shareholders closes - in order to be guaranteed a payment, it is worth purchasing shares at least 3 to 4 days before this date;

• dividends are paid, after which the price of stocks usually falls.

Typically, a meeting of shareholders is held in the spring or early summer - in Russia, the law sets the period from May 1 to June 30 for this. At this meeting, the amount of dividends and the closing date of the register of shareholders are determined. Moreover, according to the law of the Russian Federation, it cannot stand for less than 10 days and more than 20 days from the date of the meeting.

Novice investors often wonder how to get dividends on stocks. If you bought through a broker, you do not need to do anything. Money is simply credited to the account.

Owners of “paper” stocks are also not worth worrying about. The money will be credited to your bank account or plastic card. For example, if an investor acquired Gazprom shares in Gazprombank, he will receive dividends on the card of that bank.

Money will not be transferred in one day. By law, payments can take up to 25 days from the closing date of the registry. First of all, owners of preferred shares receive a payment. And only after them are the remaining shareholders.

Do I need to pay dividend income taxes?

Upon receipt of 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 already, net of tax paid by the broker.

However, investing in stocks is safer and more profitable than a bank deposit because stock prices are constantly increasing in the long run, and high inflation only contributes to this. Moreover, it is not necessary to pay tax on this “paper” profit until it is realized, that is, until the investor sells the shares.

In addition, even if the rate drops, 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.

To summarize

As a rule, dividend income does not exceed 5-10% per annum. Nevertheless, investing in stocks is more profitable than holding money in a bank. The real inflation rate in Russia is still high. This contributes to the growth of stock prices. This is the main profit from such investments. And dividend payouts are a nice bonus.

To receive dividends, you need to own shares on the registry closing date. You do not 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, from the date the registry is closed until the funds are credited to the account, no more than 25 days must pass.