Dividend is defined as a portion of the earnings of a company within a specified duration of time. It is paid out to the shareholders as determined by the board of directors. They may be in the form of shares of stock, property or cash. Such bonuses may be issued as one-off special payout amounts or as continuous payments as the value of the company continues to increase. There are different types of dividend payments that exist.
Investors need to understand that companies have a number of options as regards the handling of profits apart from allocating it to shareholders. For instance, they may decide to keep it within the company so that it forms part of the operating capital. The latter is what is termed retained earnings. Another option is for the company to use the profit to buy back its own shares (share buy-back) in the open market. Recommendations of the bonus have to be approved by the shareholders.
There are two main methods that are used in quoting the dividend rate (what each shareholder is to get). The first is called the dividends per share, DPS. It involves quotation of bonuses in terms of dollars (or other currency unit) for each share held. The second, referred to as the yield, involves quoting bonus payments as percentages of the prevailing market prices.
The commonest type of bonus is the cash dividend. This is determined by the board of directors of a company on a specific date known as the date of declaration. The cash is assigned to individual stock holders of the company on the date of record. Stock holders receive their cash on the date of payment. The cash received is proportional to the equity that is held by each stock holder.
Stock dividends are another common type of bonuses that are issued to shareholders. They are the preferred mode of payout when a company is short of operating capital but still wants to keep its investors happy. Each shareholder receives additional shares that are proportional to their preexisting shareholding. The proportional of shares issued should be less than 25% of outstanding shares for this to be true. If the value is more the transaction will be referred to as a stock split.
Property dividends are also non-monetary. They may include any of the assets of a company such as vehicles, inventory, pieces of equipment and real estate properties among others. The company restates the fair market value of the distributed assets. This value may either be higher or lower than the book value which means that it will be captured either as a loss or a profit.
When a company does not have enough funds to give as bonuses in the near future, the shareholders receive what is referred to as a script payment. This works more or less as a promissory note meaning that they will be paid at a later date as soon as the funds for the same are available. Another way of looking at scrip dividend is that it is equivalent to new shares created by the company.
In some cases the directors may decide to return the original capital to the shareholders. This payment is referred to as the liquidating dividend. Such may be necessary when there are plans to shut down the business.
Investors need to understand that companies have a number of options as regards the handling of profits apart from allocating it to shareholders. For instance, they may decide to keep it within the company so that it forms part of the operating capital. The latter is what is termed retained earnings. Another option is for the company to use the profit to buy back its own shares (share buy-back) in the open market. Recommendations of the bonus have to be approved by the shareholders.
There are two main methods that are used in quoting the dividend rate (what each shareholder is to get). The first is called the dividends per share, DPS. It involves quotation of bonuses in terms of dollars (or other currency unit) for each share held. The second, referred to as the yield, involves quoting bonus payments as percentages of the prevailing market prices.
The commonest type of bonus is the cash dividend. This is determined by the board of directors of a company on a specific date known as the date of declaration. The cash is assigned to individual stock holders of the company on the date of record. Stock holders receive their cash on the date of payment. The cash received is proportional to the equity that is held by each stock holder.
Stock dividends are another common type of bonuses that are issued to shareholders. They are the preferred mode of payout when a company is short of operating capital but still wants to keep its investors happy. Each shareholder receives additional shares that are proportional to their preexisting shareholding. The proportional of shares issued should be less than 25% of outstanding shares for this to be true. If the value is more the transaction will be referred to as a stock split.
Property dividends are also non-monetary. They may include any of the assets of a company such as vehicles, inventory, pieces of equipment and real estate properties among others. The company restates the fair market value of the distributed assets. This value may either be higher or lower than the book value which means that it will be captured either as a loss or a profit.
When a company does not have enough funds to give as bonuses in the near future, the shareholders receive what is referred to as a script payment. This works more or less as a promissory note meaning that they will be paid at a later date as soon as the funds for the same are available. Another way of looking at scrip dividend is that it is equivalent to new shares created by the company.
In some cases the directors may decide to return the original capital to the shareholders. This payment is referred to as the liquidating dividend. Such may be necessary when there are plans to shut down the business.
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