Dividends VS Distribution Schedule
Most people are familiar with the terms common stock and preferred stock. However, there is an important difference between preferred stock vs common stock and it has to do with what kind of ownership you have in the stock market. Let’s face it, a lot of the rules that restrict what you can and cannot do regarding your investments and such aren’t just laws that are in place because someone else wants to protect them. Instead, they are laws that protect you from unnecessary pain and suffering if you happen to make bad decisions.
So, what are the differences between common stock and preferred stock vs common stock dividends? Well, as you probably know already, dividends are a percentage of stock ownership that an investor receives. There are certain restrictions that apply to dividends though and common stock isn’t really designed for them. In this article I’ll highlight a few things that you should know about dividends so that when it comes to choosing between common stock or preferred stock vs common stock, you have all the information at your disposal.
First of all, unlike dividends, which are given automatically by the company in question, distributions are not necessarily automatic. Distributions are paid by the company based on their profits and the way they distribute them will affect how much each dividend is. One common distribution schedule is called the net income statement and this shows you the company’s overall profit after they pay out their distributions. The problem with this kind of distribution schedule is that it doesn’t show you the actual cost per share and so you end up assuming that the cost of every share is the same.
What kind of distribution schedule you have will depend on how you personally view the value of your stock. If you see dividends as something that is gravy on top of the money you’ve already made then you don’t really care about distribution. On the other hand, if you see stock sales as an incredible benefit to your business then you’ll want to look at the costs of dividends. Obviously, if your business is doing well enough that you won’t be able to issue dividends, a common stock would be a good choice over Preferred Stock or Common Stock.
Dividends should always be reinvested. The distribution can be reinvested in many different ways, but for the most part it is usually reinvested into additional shares of common stock or another stock that performs better than the current stock. Some companies issue quarterly dividends which can help to further increase your overall return. You could also simply reinvest the dividends directly back into the company. All in all, the best way to manage your investments to ensure you receive your money’s worth is to make sure you reinvest your dividend distributions.
If you think about dividends, net profits, distribution and company growth — it makes sense to use a stock dividend policy with a preferred stock vs common stock. Preferred Stock vs Common Stock have many advantages but also have some disadvantages. Preferred Stock can be very risky to purchase, there are no dividends to be reinvested, and distribution schedules can change at any time. Always consider these factors before deciding between Preferred Stock or Common Stock.
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