What are dividends?
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A dividend is the payment made to qualified shareholders from a company's earnings.
It typically comes from the company’s net profits. While some profits may be retained by the business to be used for current and future operations, the remaining may be distributed to shareholders as a dividend.
The board of directors of an organization decides on dividend distributions and quantities.
Dividend payments are frequently made quarterly and might take the form of cash payments or stock reinvestments.
How does the dividend work?
Process of how dividend works:-
- The business makes profit and retains its earnings.
- The management team determines that some excess profits should be distributed to shareholders (instead of being reinvested)
- The proposed dividend is approved by the board.
- The corporation makes the dividend public (the value per share, the date when it will be paid, the record date, etc.)
- Shareholders receive the dividend.
Types of dividend-
- Cash: - The most typical sort of payment is cash, which refers to actual money paid by the company to its shareholders. Typically, the payment is made electronically (through wire transfer), although it is also possible to pay with a cheque or cash.
- Stock: - Dividends paid in stock are distributed to shareholders by issuing more company stock. These are distributed proportionately, according to how many shares the investor already holds.
- Assets: - A business is not just allowed to distribute money to its shareholders in the form of cash or stock. Although it is uncommon, a firm may also pay out other assets including investment securities, tangible property, and real estate.
- Special: - A special dividend is one that is paid in addition to the standard dividend payout schedule of a firm (i.e., quarterly, annual, etc.). It usually happens when there is too much money on hand for one reason or another.
- Preferred: - The term "preferred" also designates the class of shareholders who will receive the dividend.
- Other: - Options, warrants, shares in a new spin-off firm, and other uncommon financial assets can also be paid out as dividends.
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