When it comes to alternative investments, we hear the term dividend a lot. What you may not know, though, is that there are different types of dividend-related investments. You have stock dividends and cash dividends to choose from. What are the differences and how do they affect you?
Cash Dividends
Cash dividends are investments that offer a cash payout to investors/shareholders from the company earnings based on the number of shares owned by the investor. This payout is taxable income, and it means that the company doesn’t have this money to use for growth or operations.
By providing this money to investors, a company’s stock price will be affected. If a company pays out a cash dividend of 10%, the shareholders will see their shares drop by a 10% value as well.
In short, when you receive a cash dividend, you pay taxes on it and also see a drop in the value of the shares you own. The company you hold shares with will no longer have that income to draw from for operations as well. However, this is a beneficial system for those looking to live off of their dividends as they act as a cash income. The investment itself with the shares offers investors access to an investment with capital appreciation.
Stock Dividends
Stock dividends are when a company increases the number of shares of that company and gives these new shares to investors/shareholders. This increase in shares doesn’t increase the value of a company, however. It affects the cost of the shares themselves. Share prices will drop accordingly when a company gives shares as a payout.
When it comes to a stock dividend, investors have the flexibility to choose if they keep the shares given or sell some for a more manual approach to a cash dividend. This is the case only when a stock dividend investment doesn’t have a cash dividend option.
How Do Dividends Affect MICs?
When it comes to mortgage investment opportunities with a Mortgage Investment Company (MIC), dividends play a massive role in how the investment performs for the investor. As an alternative investment, it’s important to understand how dividends can affect an MIC and how you can use the right set up to diversify your portfolio.
At Cooper Pacific, our MICs use a dividend based payout structure for 100% of their net income. At Cooper Pacific, our MICs utilize a dividend-based payout structure for 100% of their net income. By choosing to invest with a stock dividend-based mortgage investment, an investor can achieve a higher rate of return thanks to compound interest effect. By reinvesting your earnings into the MIC with more shares, your overall investment grows with the growth of shares. This growth works to an investor’s advantage. If later in life, you choose to live off of the dividends as a form of retirement income, you can sell shares. The flexibility associated with stock dividends is what makes them more appealing.
When it comes to alternative investments, things can get a little overwhelming fast. Especially when thinking about cash and stock dividends and which form of dividend plan is right for your goals and alternative investment strategies. At Cooper Pacific, we’re committed to helping you navigate the world of mortgage investment successfully. Get in touch today with Jordan at our office and figure out what system fits your goals and needs.
