What is a Dividend?

Dividend are part of the profits and retained earnings that a company pays to its shareholders. If a company makes a profit and accumulates retained earnings, those profits is reinvest able in the business or given to its shareholders as dividends. Moreover, dividend yields is the annual dividend per share divided by the stock price.

How do Dividend work?

The value of the dividend determines per share and is equalize for all shareholders in the same class (ordinary, preferred, etc.).

Steps on how it works:

Types:

1. Cash – Firstly, this is the actual cash payment directly from the company to the shareholders and is the most common type of payment.
2. Shares- Secondly, Issuance of new shares of the company in form of dividend to the shareholders.
3. Assets– Thirdly, Most importantly, Companies is not liable to pay distributions to shareholders in the form of cash or shares. However, companies may also pay other assets such as investment securities, physical assets and real estate but this is not a common practice.
4. Special – Moreover special dividends means dividends which is paid outside the company’s normal policy (quarterly, annual, etc.). This is usually the result of having excess cash on hand for some reason.
5. Common – It means the class of shareholders (i.e., ordinary shareholders), not what is actually receiving it as payment.
6. Priority – It refers to the class of shareholders who receive payments.
7. Other – Lastly, we can pay dividends on other less common types of financial assets, such as options, warrants, and stocks of new spin-out companies.

For example, if a company pays a dividend of 20 cents per share, 100 investors will receive $ 20 in cash.

Stock dividends are the rate of increase in the number of shares you own.

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