There are effects of dividend on stock prices in a variety of ways. As we all know that companies with a history of paying dividend stocks are more popular than the ones that don’t pay dividends. Besides, even the declaration and the payment of dividends also have an effect on the market price.
How Do Dividends work?
Dividends can be a great source of income for investors. Meanwhile, for the issuing companies, it can be a way to redistribute its profit into the shareholders.
It is a way from that company to thank its shareholders. Besides, it also serves as a way for the company to announce its success. Commonly, companies pay that dividends in cash or in the form of additional shares of stocks.
The investors receive that dividend payment based on the amount of the shares they currently own.
The Effect of Dividend Psychology
Companies that annually pay a dividend are popular among investors. Even if common stocks do not guarantee dividend payment, but many companies still companies like to take pride on generously pay consistent dividends to their shareholders.
Investors, commonly, perceive these companies as a financially stable company. These companies have the ability to attract more investors to purchase their shares of stocks and gain the benefit from their dividend payment. Once that happens, the company stock price will increase.
Dividend Declaration’s Effect on the Stock Price
Before companies pay a dividend, they need first declare the number of dividends and when they will pay it. Besides, they also announce when the last date for investors to purchase the dividends in order to get the dividend payment. Investors usually call it as the ex-dividend date.
This declaration, generally, also encourages investors to buy the stocks. Some of the investors even pay a premium in order to purchase the stocks before the ex-dividend date.
During the days before the ex-dividend date, stocks will face an increasing price.
