Because of the risks that accompany trading CFDs, there are only a few individuals who acknowledge the fact that CFDs can make wonders with the help of stocks and dividends. Yes, that is right, just in case you overlooked the advantage of dividends with CFDs and stocks, we are here to remind you that there is a possibility of being awarded a dividend just like owning a stock. This can happen when you own the CFDs the day before the ex-dividend date. Upon reaching the dividend payment schedule, experts say that you will receive an amount which corresponds to the dividend for every share which you were involved with. The payment shall be credited to your account.
In the business sector, a dividend is defined as a reward either in cash, cheque or in kind that is given to a company’s shareholder. In some cases, dividends can also be in the form of stocks. The amount that is allocated for dividends is usually being decided by the board of trustees or directors with the approval of the shareholders. The money that is used for dividend is usually taken from the profit that is being shared to shareholders.
Since we have mentioned that dividends come in many forms, a stock dividend is a share that is given to a company’s stockholders in the form of additional stocks.
Advantage of Stock Dividends
Once given stock dividends, a stockholder is given the privilege to decide what to do with the additional stocks. He has an option to keep the stocks for himself with a hope that doing so will give a better rate of return. On the other hand, if he wishes to trade the stocks into another financial instrument such as CFDs, he can convert his dividends into other forms for portfolio enhancement or make it a passive income generating instrument.
2. Tax free advantage
Stock dividend recipients do not need to pay taxes on the value of the stocks that were awarded to him unless given a stock dividend that has a cash dividend option.
3. Profit Gets Doubled
If your stock dividend performs well in the market you can get an annual yield of about 3% from the same stock. This percentage when earned will get a higher profit as compared to the capital appreciation.
4. Powerful tool for hedging over risks of bad market
Trading does not always guarantee a good trade. So in the case of stocks dividends, you are able to enjoy capital preservation even if your dividend stock market performance doesn’t go upm
Disadvantages of Stock Dividends
Despite the enticing advantages brought by stock dividends there are still risks that need to be considered. These risks include:
1.Involvement with small time companies
Most large performing companies do not really give dividends to their shareholders because they are focused on expansion and enhancement of their companies. When a company awards stock dividends, it shows that they are planning to make their linkage stronger by rewarding stocks as dividends. This sounds promising but if we dig deeper, you will notice that growth with these types of companies is quite slow.
2. Sudden loss of dividends
This is also called dividend cut. Keep in mind that dividends are privileges that are awarded by companies are not obligations of the company. This then means that your dividends can be taken off by the company whenever they wish to do so.
Some individuals who are into trading CFDs and stocks say that stocks dividends are more preferable than other forms of dividends. However, one must also take note of its risks whenever dividend stocks are used for trading and portfolio enhancement.