Income shares are stocks that disburse income, in the form of dividends, to registered shareholders on a periodic basis. Dividends are cash payments that are distributed to a company’s shareholders when declared by a corporation’s board of directors. Any dividends declared by publicly traded corporations are usually paid on a quarterly basis. Dividends are paid out of a corporation’s earnings and, since these may fluctuate, the payment of dividends is at the discretion of the company’s directors.
Since such payments are not guaranteed, investors looking for stable dividend income often purchase preferred rather than common stock. In general, most preferred stocks contain a covenant that calls for the payment of corporate dividends first to preferred shareholders, and then to common stockholders. Preferred stocks come in a variety of forms that provide varying degrees of protection, in order to ensure that preferred shareholders receive preference in the payment of dividends. For instance, if a corporation misses a payment, cumulative preferred shares can require a company to pay all delinquent dividends in addition to those that are currently scheduled for payment. Most preferred shares are sold with a fixed annual dividend rate.
The annual amount that a stock pays in dividends is commonly expressed as its dividend, or annual, yield. This yield is computed by dividing the total amount of dividends paid on an annual basis by the price of the stock at the time of purchase. This measure affords investors a means of assessing different income shares, in order to ascertain which are paying out the most dividends each year. It also provides an index with which to compare the dividend yield of income shares against the available rate of return of other alternate, fixed-income investment vehicles, such as bonds or certificates of deposit.
Common and preferred shares of a corporation may trade independently on the various stock exchanges, depending on which exchanges list them. Information on dividends can also typically be obtained from publications, such as the Wall Street Journal. Such resources generally list the annual dollar amount of dividends, if any, that each listed stock on an exchange has paid. Other information offered by such printed resources can include the dividend yield based on the current market price. Income shares can also be purchased through certain mutual funds that specialize in investing in those common and preferred stocks that provide the highest annual dividend yields.