Earnings from the stock market through cash dividends is one of the two ways of earning passive income. We already have discussed how to earn from price appreciation in the market, if you have not read it yet refer to our previous article how to make money in stocks by price appreciation.

The photo below is an example of a cash dividend I received from a company called Semirara Mining Corporation (Stock code SCC). My brokerage company for this is COL financial and it gives me an update when I have earned a dividend from a company that I have put an investment with. Before we discuss the basic details of what is a cash dividend, lets discuss first what do we mean when we earn from a cash dividend from a company listed in the stock market

What are Dividends

Dividends are incentives being given by a company to stock holders of the shares of a certain company.

Before a company can give dividends to share holders it goes through approval process by its board director members. Deliberations are being conducted if the company has the capability to give cash (cash dividends ). This depends on the earnings of the company. It can only give dividends when they have spare cash.

So in technical terms, this is how the company distribute the earnings to existing shareholders. This is also a way for them to give appreciation for those who are supporting or giving investments to the company. People who buy the shares will be motivated to hold on the shares instead of cashing out as there is an incentive to it.

Companies distribute dividends every quarter, but for the Philippine settings this is not a hard rule, others can give twice a year or once a year as it depends on the market condition and company financial situation.

Two Types of Dividends

Dividends are classified in two types, cash dividends or stock dividends.

Cash Dividends

Cash Dividends is a type of dividends wherein the company gives cash on a specified date. We can receive this dividend electronically in our broker accounts during the payment period. The picture I have shown below is an example.

For the case below, company is giving 1.0 peso/share. Since I bought 6,000 shares form SCC (Semirara Mining Company,) I will be entitled to 1.0 x 6,000 shares or Php 6,000 pesos. There is a 10% withholding tax so there is a deduction of 600 pesos. Total amount that went to my account is Net amount 5,400 pesos. Nice!

Stock Dividends

Stock Dividends are type of dividends being given in the same manner as cash dividends but instead of giving out money the company will give a number of shares coming from the stock reserves of the company. Usually this is in terms of percentage of your existing number of shares. For example, a company declares a 10% stock dividends, you will then receive 10% of the number of shares that you have during the payment date. If you have 1000 shares then you will be entitled to 100 shares.

Note also that for this 2 types it applies to the common dividends being given regularly by the company. Sometimes when the company wants to give more dividends, they call this as special dividends. Its basically the same, just another incentive for you.

Important Dates and Considerations on Dividends

In order to receive Cash dividends (or stock Dividends), there are important dates and considerations you should take note. Simply buying a stock may not entitle you to the dividends.

There are several dates normally announce when a dividends is going to be given, these are;

               Ex-date

               Record date

               Payment date

Ex-date refers to the date when you should be holding the stocks to be included on dividend payouts. Take note this is the most important date. You should be holding shares of the stocks before this date and hold into it until this date. Once Ex date is arrived, if you buy shares on this date and after this date, you will no longer be entitled for the cash (or stock) dividends. This is where most new investors missed out so you better remember this.

Record Date

Record date is the date used by companies to account or register those who will be entitled. This is for the company purpose of recording so we should not worry about this date. Normally in disclosures, record and payment date is mentioned, so just count 3 working days before the record date and that will be your ex-date

Payment Date

Payment date is the date when the companies are obliged to pay us out with the dividends. Email will be receive from our brokers when they received the dividends from the companies. Reminder also that sometimes because of some technical or documentation issues there are times that payment date is deferred. If you did not receive dividends on the payment date, be sure to contact your broker firm for updates.

Dates for each stock can be located on PSE Edge disclosures, the attach link can be accessed.

Considerations

Remember that when a company give its investing shareholders cash or stock dividends, this will come from the company earnings or shares so there is an impact to the stock price. They inversely correlated so when a company gives out a 10% dividends, expect the price to correct by the same amount. Don’t worry on this as the market is just pricing in the effect on income or handing out of company earnings. Price will recover if the stock has great expectations in the future.

Watch our video lecture

Before reading this article I hope that you have understand what is a stock market already Base from our discussion on the previous article. You can visit it back to check so that you can appreciate the information from this topic. You can click the underlined link.

There are two ways of earning from the stock market. One is by price appreciation and another is by dividends. For this discussion we will only be considering the former (price appreciation) so we can understand how it works.

In Philippine stock market setting, we can only earn from the market if the price of the stock that we have bought have gone up from its initial price.

For example, if I buy now from the stock shares of Jollibee Corporation at P204/share and tomorrow the price increased or appreciated to P214/share you will earn, if later your will sell already at this price. So the price difference per share of 10 pesos will have an impact of 10/204 or 4.9%. You will earn 4.9% from this transaction. Great right?

But think again.

Of course, there is a possibility of losing in the market as share prices move by the second, and it fluctuates in price in both ways. It can go up or down, so better choose wisely which stocks you are going to trade or invest in. Later I will explain also the difference between investing and trading in the market.

Now basing from our previous discussions on what the stock market is, we will continue explaining the effect of price appreciation. Remember this transaction last time when I bought the company shares for Global Ferronickel? This is the summary of my transactions when I bought 30,000 shares of the company. Later on when you have your brokerage account this transaction will be included on your transaction history.

So now that we have bought the shares these transactions will also have a data for the transaction #, Order# and everything else on what you see on the photo below. For this example, I have previously applied for my brokerage account with the company called COL Financial so all formats you will see will come from these brokerage firm. We will also have another discussion with the Brokerage firms that I know so you can see the difference. For now COL financial is the most popular brokerage firm in the Philippines

There are different companies listed on the stock market, so you can have as many as you want, later however try to learn how to diversify properly so you don’t get lost on tracking shares from the company that you buy. Too many stocks you buy will clutter on your portfolio.

Good thing our brokerage firm has a section on our account where we can see the summary of stocks that we buy. We call this our portfolio. For COL financial account holders this is how it looks like. I have shaded the sensitive details for personal reasons.

Notice the red rectangle I put on the %gain and gain area of my portfolio? There is a green colored value which signifies that my trade or investment have already earned a 3% increase after I bought the shares.

This happened because the actual price in the market of the shares I bought have as compared to the average of the price I bought it before (average of share price + broker commissions + tax deductions) is higher, so the market price of my stock have appreciated and earned 3% already!

Now you have a basic understanding how to earn from share price appreciation. Just a word of caution as always, if the market share price can go north, it can go south as well. So be careful always on what stocks you buy. Better study first the market before doing your trade or investment.

Oh by the way you know what happened to this stock? I kept it for another day and the price did move up more from the 3% gain I showed you. The price now appreciated more and so I decided to sell it already. Earning more than 10% in few days on the market is quite good so better take your profits or earnings from the market while it is still on the high prices.

I hope our discussions have shown you how to earn from price appreciation from the market. As you have learned here there is a potential of earning passively on the stock market. See you on our next topic.

Related Articles:

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How Do you Earn From the Stock Market by Price Appreciation

How to Earn from Dividend Stocks, List of PSE Stock Dividends for September 2022

Why We Need to Diversify Our Investments