Understanding The Company Dividends

Understanding The Company Dividends

Companies which earn a profit will do either of the three things- reinvest in the business, reduction of debt or pay profit to the shareholders. When the profit is distributed among the shareholders, then the payment is called as the dividend.  Many of the investor’s dream of living out of stocks.  In earlier days, people bought the shares with the sole purpose to earn a dividend.  Later on, people started trading the shares in the stock market to earn a profit. Nowadays, with the advent of technology, even digital currencies are traded online to earn a profit. All the information regarding the cryptocurrencies can be viewed here.

Information about the process

The dividend basically has to be approved or declared by the organization’s board of directors every time they get distributed.  Below mentioned are the key dates one should remember regarding the dividends.

Declaration date- It is on this day that the board of directors will announce that they are planning to pay the dividend to the shareholders. On this particular day, the organization enters liability on its accounts, that is,  now it is indebted to the stockholders to pay the money.  Also on this date, the organization will announce the record date and date of payment.

Record date- The record date is also called the ex-dividend date.  On this date, the stockholders are entitled to upcoming payment of dividend. The shareholders who have purchased the shares before or on this date are entitled to the dividend money.

Payment date-   On this date, actually the dividend gets distributed to the shareholders of the organization.

Different types of dividends

Cash dividends- These are the normal cash dividends that are paid from the profit of the organization to the shareholders.  The organization which has issued the preferred stocks should make the payment of dividend to those shareholders first before any money is paid to common shareholders.

Special one-time dividends- The organization might pay a one-time special dividend to the shareholders in addition to the normal dividends. However, the occurrence of such scenario is rare and it happens because of various reasons like liquidation of the investment, sale of a business or winning a major litigation.  They will be either in the form of stock, property or cash dividends.

Property dividends- When an organization distributes the property to the stockholders in place of stock or cash, then they are known as property dividends.  This property dividend will be recorded at the market value on declaration date.