What is the difference between coupons and dividends?

Bag of dividends
Bag of dividends

What is the difference between passing coupons and dividends? Summing up to the maximum at the risk of being inaccurate we could say that the coupons are the bond interest, dividends are those resulting from actions. Dividends are born from a profit that is produced by a company that emits an action, the coupons are born from a debt and the contract by a person who issues a bond. We’ll also go down into details though to make some distinctions.

gold dividends

gold dividends

The coupons are the supplementary document which entitles the charging of a fee of periodic interest on the part of the owner of an obligation which may be corporate or governmental but also certain types of investment funds. The distribution of coupons is certain to contract. In fact, if the coupons are not paid on time by the borrower it can take the default procedure, bankruptcy. There are fixed rate coupons and floating rate coupons. There are also zero coupon bonds in which the yield to maturity of the bond is cashed by calculating the difference between the subscription price and the redemption price.

Bag of dividends

Bag of dividends

Dividends are usually a share of the profits of exercise that is distributed to shareholders. They are not always paid to investors, for example when there were no profits to be distributed or if the company chooses to capitalize. In practice, when you buy the shares it also assumes the risk of not receiving dividends in the future. Moreover, the shares have other important advantages. They can be quickly sold on the stock market and then provide the holder the right to participate in the management of the company. The bonds instead only give the holder a debt which must be paid in any case before the deadline, regardless of the results of the year.

Speaking of dividends, we can also mention the important concept of dividend yield by which I mean the percentage value that is derived from the relationship between the distributed profits per share and the price of the same. It is an important parameter to hold investors or those who do not care about speculation which is the big short term gain but rather the steady stream of income. On the basis of price quotations for the last few years a dividend yield around 3.5% is considered good.

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