QandAs: Legal

What are Dividends?

Answer:
Dividends are profits that a Company generates

and distributes to their shareholders. If you own, are co-owner or you are a stock holder in a Company then you could earn Dividends from profits generated by the Company.

Dividends can't be justified as an expense, they are simply cash profits that are distributed to shareholders. Dividends should be considered as investment income and that cash can be used for regular income replacement or used however the shareholder wishes.

Payments of Dividends depend on the Company but are usually paid quarterly or yearly. Wealth Managers, Investment Advisors and Portfolio Managers alike tend to build an investment strategy depending on the investors needs. Often times, this strategy entails purchasing stocks depending on what their Dividends are due to their tax benefits.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 was passed by George W. Bush. The idea is to eliminate double taxation and encourage shareholders to spend more or reinvest. To encourage such, the Act states that Dividends are taxed at 15% instead of the regular income tax rates.

This is an attractive reason to purchase stocks that yield good Dividends and one should consider it when purchasing stocks.