A study conducted by the Tel Aviv Stock Exchange reveals that 12% of the firms listed on the local exchange have consistently paid dividends for a minimum of ten years. These companies have significantly outperformed the market, with an average stock return of 350% over the last decade, starkly contrasting with the TA-125 index's return of just 56% in the same period. Impressively, 75% of these firms achieved triple-digit returns, with only seven stocks (11% of the total reviewed) underperforming the TA-125 index.
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The sustained dividend payments over years are seen as a strong indicator of a company's financial health and resilience. Profitable companies have the advantage of distributing a portion of their earnings as dividends to shareholders, while also retaining a share for reinvestment purposes.
Dividends are generally issued from profits that the company has deemed surplus and distributable. In some cases, dividends may also be paid from capital funds, such as share premium accounts. Although dividends are typically disbursed in cash, companies can opt to issue "stock dividends," which involves distributing additional shares as dividends.
The dividend payout schedule is usually set once or twice a year, after the company announces its financial results. The decision on the dividend amount is made by the company's board of directors.
Key dates in the dividend process include the announcement date, when the company declares its intention to pay dividends; the "record date," which determines who is eligible to receive the dividend; and the "ex-dividend date," following the record date, when the dividend payment is deducted from the company's profit reserves and reflected in an adjusted stock price.
In Israel, the tax rate on dividend income for individuals is 25%, except for those holding a significant share in the company (more than 10% of shares), who face a 30% tax rate. This contrasts with a 15% tax rate on interest payments received from non-index-linked debt instruments.
Investment portfolio allocation decisions, including the mix of stocks and bonds, are personal choices that can benefit from professional advice.
This article serves informational purposes only and is not a substitute for professional investment and tax advice.
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