Publicly listed companies offer rewards to their shareholders which is usually a part of the net profit earned by the company. Such rewards are referred to as dividend. Dividends are mostly received in cash form but can also be in the form of shares, assets etc. The net profit is calculated after subtracting all the expenses from the total profit. The rate of dividend is decided by the board of directors of the company. The majority shareholders of the company shall also provide their approval for the same.
However, it is not necessary for a company to pay dividend if it is in profit. Companies can utilize the accumulated profits for reinvesting in their business or even simply save it for future. When a company announces dividend, there is a significant movement in the stock value of the company. This movement can be either positive or negative.
A company can pay dividend to its shareholders in various forms. Depending on the declaration frequency, shareholders are usually rewarded with two types of dividends:
• Special Dividend – Special Dividend is announced on common stocks. This type of dividend is paid when the company has accumulated good amount of profits over certain years and such profits are valued as excess cash which is not required by the company at the given moment or near future.
• Preferred Dividend – This type of dividend is issued to the preferential shareholders. This is usually a fixed amount which is paid off on quarterly basis. Such type of dividend is earned on shares which function like bonds.
Some of the common types in which a company pays dividend are as follows:
• Cash
• Assets
• Stocks
• Common Stocks
Apart from these a company may also reward its shareholders by offering shares of a new company or warrants and other such financial instruments as divided. It must be noted that dividend income influences the share price of the company accordingly.
Disclaimer: All content provided is for informational purposes only, and shall not be relied upon as financial/investment advice. Neither CapitalVia nor its employees have a holding or any sort of interest in any stock which is recommended. Recommendations shared, if any, are only shared for information purposes. Although the best efforts have been made to ensure all information is accurate and up to date, occasionally unintended errors or misprints may occur.
