Are monthly dividends mandatory for REITs
What is a monthly dividend?
Joint stock companies divide their share capital into shares, which they transfer to various Investors to sell. The shareholders hope that an investment in shares will generate both price gains and one Share in profit the company. The profit share is paid out to the shareholders in the form of a dividend. The German Stock Corporation Act describes the dividend as the amount to be distributed. The board of directors of a stock corporation proposes the amount of dividend payment to the shareholders. Then the General meeting give their consent to the amount of the distribution. A simple majority of all participants in the general meeting is sufficient for this.
In the German Stock Corporation Act it is regulated that the shareholders get the return from their investment once a year receive. Until the end of 2016, the dividends were paid out one day after the company's annual general meeting. An amendment to the German Stock Corporation Act has been in effect since January 1, 2017, according to which the dividends are paid to the shareholders on the third banking day after the Annual General Meeting. In other countries, such as Great Britain, Spain, the Netherlands and especially the USA, public limited companies pay quarterly or even monthly dividends out. Some companies decide voluntarily to make dividend payments during the year within the framework of the legal conditions in their country. Other companies are required by law to distribute profits to their shareholders on a monthly basis. For this, the companies receive Tax benefits or others state perks.
Passive income from monthly dividends
Investors who invest in shares in German companies only receive dividend payments once a year. Like looking into you Dividend calendar shows, many German stock corporations hold their general meeting in spring and summer. Especially in the months April to June Numerous distributions of the dividends decided in the general meeting take place, while at the end of the year only a few companies invite the shareholders to a meeting. Even if an investor owns shares in several companies, they will not receive a dividend every month.
By buying foreign papers, an investor can become a regular passive income build up. American real estate companies in particular are taking advantage of the tax breaks that the law offers them when they are considered Real Estate Investment Trust (REIT) are active. In order to receive the tax benefits, firms must commit up to 90 % to pay their profits to the shareholders. The distributions take place monthly, so that the investors receive a credit in their account every month. Investors with high equity holdings can earn a steady income equivalent to the salary from a paid job.
Advantages and disadvantages of monthly dividends
Regular monthly dividends are either one additional earnings for an investor or they can even be one Replace salary. The more shares with monthly dividends an investor owns, the higher the credit on his account every month. The shareholder can either use the money for daily living or he or she reinvested the dividends. Reinvesting increases the dividend yield because the investor has a Compound interest effect achieved. However, investors must note that a monthly dividend is usually considerably lower than a dividend that is paid at the end of a financial year. A significant income can only be earned by owning many stocks with monthly dividend payments.
A disadvantage of monthly dividend payments from stocks in US companies is the greater administrative burden associated with the taxation. The American Treasury charges 30 % Withholding tax. This tax can be applied to German shareholders 15 % halve if you send the completed and signed Form W-8BEN to the custodian bank in Germany. With this form the investor confirms that he is not subject to US tax liability. This halves the US withholding tax under a double taxation agreement with Germany. After the dividend has been credited, additional 10 % German withholding tax due, as the tax rate for investment income in Germany 25 % lies.
Be aware of the risk of price fluctuations
Many companies that pay a monthly dividend are subject to special rules legal regulations. The companies benefit from tax advantages or other benefits that can save them money. In general, REITS can be found in a wide variety of economic sectors. There are companies that have specialized in the real estate sector and thus manage residential units, retirement homes or even commercial spaces such as shopping centers or office buildings. But there are also a number of REITS that focus, for example, on the technology sector and rent out large server systems or radio masts.
In order to receive the financial advantages and benefits, the state sets conditions that the beneficiary company must meet. These conditions often include a request to do up to 90 % of the profits generated to be distributed to the shareholders. The exact conditions can be found on this website. IMPORTANT: 90% profit distribution means, however NOTthat the respective company cannot spend money on important investments. After all, profit is "sales minus capital expenditure". While the companies are often popular with shareholders who are primarily interested in a Dividend income strategy but you should be aware that a portfolio with many REITS often does not show too much price growth.
A few minor errors crept into my original article. Thanks to the IT frog who pointed out the errors to me, you can find the corrected version here. If there are any other errors, please let me know - I'm just a person who does something wrong every now and then ...
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