One quick win a trader can tap into is picking the top dividend stocks to trade. In terms of ‘safety’ and outperformance in the long run, dividend stocks are among these low-hanging fruits that are easier to pick and taste.
When it comes to stock CFDs, traders get confused and don’t know what to expect. Let us help you to untangle the knot of stock CFDs – or share CFDs. A pleasant spoiler: things are much less complicated than you may think.
What are dividends? How do they work?
Α dividend is a distribution of a company’s profit regularly made to the shareholders in cash or as additional shares. Dividends are typically paid out quarterly or semi-annually to the investors that own the underlying assets. Through dividends, an investor can assess the financial health of a business.
In that way, dividend stocks ensure an income for the shareholders. However, as there are different types of stocks, not all stocks pay dividends – so why would someone buy a stock that does not payout?
Non-dividend stocks can lead to greater growth in share price and value for investors. Companies that don’t offer dividends are typically reinvesting profits so that the stock price can rise in the long term.
What is an ex-dividend date?
The ex-dividend date is the final day where a potential shareholder can buy a stock and is entitled to the upcoming dividend payment. It’s usually one business day before the company pays out the dividend.
Traders who open a position on or after the ex-dividend date are not entitled to the dividend payment.
A tip to remember is that the value of a stock will fall on the ex-dividend date due to the dividend payout.
Dividend adjustment payments in CFD trading – do stock CFDs pay dividends?
You probably have already realised that there are various charges and credits to your account while you hold an open CFD position. The dividend adjustment is just another one of these.
If traders hold a long position in shares with CFDs and hold the day before the ex-dividend date, they become entitled to a payment equivalent to the dividend amount. Similarly, if traders hold a short position on that instrument, a dividend adjustment will be debited from their account.
Want to brush up further on your knowledge of stock trading? Look no further than our Beginner’s Guide to Stocks.