What is a choice dividend?
If a choice between a cash or stock dividend is offered, it’s known as a choice dividend. A cash dividend is a monetary payment made by a company to shareholders giving them a slice of its profits. A stock dividend is paid out in the form of additional shares.
Where have you heard about choice dividends?
If you hold shares, you’re probably most familiar with cash dividends. You may hear about companies issuing stock dividends if they either have a short supply of capital available or want to use any existing liquidity to reinvest in the business.
What you need to know about choice dividends.
There are advantages and disadvantages to both methods of receiving a share of company profits. Cash dividends provide you with a steady stream of income, but the money you receive is taxable.
Stock dividends won’t give you a regular income, but you can benefit from the long-term gains on your investment. The other bonus is that you won’t have to pay tax until you sell your shares.
If you’re not investing for the long term, you’re probably better off choosing regular cash payments over payments of additional stock.