How do stock dividends work and where are they deposited?

Find out how stock dividends work and how you will receive them

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If you want to invest in variable income, you certainly need to know how stock dividends work.

In fact, you've probably heard that a certain company broke profitability records. Since these figures are very high, those who invest in this company are interested. After all, they will receive a portion of the profits through dividends.

But after all, what is this and how does it work in practice?

Understand this and more below.

What are stock dividends and how do they work?

Dividends are part of a company's profit distributed to its shareholders as a form of remuneration.

Most stable companies distributes dividends, as this offer helps to attract investors.

When a person buys shares in a company, they become a “partner” in the business, or shareholder.

The dividends that the investor receives are proportional to the number of shares or quotas he has. In other words, the greater the volume, the more he receives.

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Why do companies pay dividends?

According to the Corporations Law of 1976 (Law No. 6,404), companies listed on Stock Exchanges must distribute a percentage of their profits among shareholders.

However, there is no mandatory minimum percentage of profit that must be divided among investors.

In fact, companies can decide how much will be distributed as dividends. In fact, this is determined by § 1 of article 202 of Law 6,404/76.

The company's articles of association indicate the percentage of profits that will be allocated to mandatory dividends.

But in any case, most companies adopt the value of 25% of net profit to be distributed to shareholders.

As we said, this type of payment attracts new investors and increases the value of the company's shares.

Companies that offer fewer dividends attract less attention from new investors.

Therefore, 25% are often used to make companies more attractive.

What are the types of dividends and income?

There are different types of dividend distribution:

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In cash

Here, the person can receive an exact amount for each share they own or a percentage.

The money, if the investor wishes, can be used to purchase other shares in the company.

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Actions

Payment is made in the form of additional shares.

Who receives the dividends on shares, receives a specific number of shares from that company, according to the number of shares it already has.

In other words, instead of receiving an amount in reais, the investor receives more shares.

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Special dividend

A special dividend is an extra payment that companies make to shareholders.

It is different from the dividends that investors normally receive.

This can happen for a number of reasons, such as an unexpected gain or increase in company cashier.

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Interest on Equity (JCP)

It works in a similar way to dividends.

But in the case of JCP, the investor has 15% of Income Tax withheld at source.

Despite this, the company has tax exemption on dividends and, therefore, can distribute a larger amount of profit.

The calculation of Interest on Equity takes into account certain topics of the organization's net worth, such as:

• Share capital

• Profit reserve

• Capital reserves

• Treasury shares

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Subscription rights

The subscription right is a benefit that guarantees current shareholders of a company the right to acquire, with preference, new shares issued by it.

Subscription is a right granted to the shareholder, not an obligation.

This means that he can count on this possibility, but is not obliged to acquire new shares.

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How to calculate stock dividends?

Dividend payments can be quarterly, semi-annual or annual.

The definition depends on each company.

Regarding the calculation, this process is simple, as dividends are usually calculated with a value per share. This means that they vary according to the number of shares that the investor owns.

But if the dividend calculation is based on a percentage, the calculation works like this:

Percentage of the share value X the share price X the number of shares the investor has.

Additionally, it is also important to calculate a company's Dividend Yield.

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Dividend Yield

Dividend Yield (DY), can be translated into Portuguese as Dividend Yield.

It is used to calculate the annual dividend of a stock divided by its current price.

In other words, this account is important to show how much dividends are being paid in relation to the value of the share, helping the investor to define where to put the money.

DY = (dividends per share ÷ unit value of share) x 100

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Where is the value of stock dividends deposited?

Do you know what the process is for the value to reach you?

Some people believe that the value of dividends paid by companies is deposited into the investor's traditional bank account.

Actually, it's not quite like that.

The amount will be deposited into your brokerage account. You can then use it to buy shares, other assets or transfer it to your bank account.

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What are the costs and taxes of dividends?

Brokerage fee

To invest in stocks, you need to open your account with a stockbroker, which will mediate the relationship between investors and the stock exchange. 

In other words, this cost is paid by the client for each transaction carried out on the stock exchange. The amount can be fixed or variable.

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Service Tax (ISS)

The ISS is levied on the value of the brokerage fee. However, certain brokers already include the value of this tax in the fee.

In addition to the brokerage fee and ISS, we can mention other costs and taxes, such as:

• Custody maintenance fee

• Fee on the amount in custody

• Fees and settlement rate

• Income Tax (IR)

Conclusion

Now you know how dividends work.

In fact, investing in stocks is a great investment strategy, as long as, of course, you know how to choose good stocks.

But before investing in dividend-paying stocks, understand your investor profile and set financial goals, so that you can be sure that this is the best option for what you are looking for.