Dividend is a portion of the company?s earnings to be distributed to
its shareholders, based board of directors? decision. Dividends are
quoted as Dividend Per Share (DPS) or dividend yield. Most companies
having stable and secure growth offer dividends when their share prices
become stagnant. However several companies do not offer dividends as
all profits are reinvested to ensure faster, better-than-average growth.
The
board of directors decides the percentage of the profit to be
distributed as dividends. Dividends are issued quarterly or annually,
and companies are not under any obligation to pay dividends every
quarter and the company may stop paying dividends at any point of time.
But if the company stops paying dividends its market value is affected,
hence dividends are paid regularly and even if there is no increase in
the dividend at least they will get dividends on a fairly regular basis.
Dividends
are declared by the board of directors each time they are paid. There
are three important dividend-related dates, declaration date, date of
record and payment date. On the declaration date the company opens a
book of liabilities in terms of the cash dividends it owes to the
shareholders, and on this date both the other dates are decided and
declared. Date of record indicates the dividends are only paid to
shareholders who are the owners of the share on or before the date of
record. Payment date is the date the dividend is paid out.
Kinds Of dividends
Companies offer three regular kinds of dividends.
Cash
Dividends: This is the most common and popular method of sharing a
company?s profits. A portion of the company?s profits is paid to
shareholders as dollar per share. However cash dividends are subject to
double taxation in the US. A reason used by many companies to justify
not paying dividends. They are taxed at a maximum rate of 15%. The
dividends are distributed after the company has paid income tax. The
shareholders are also taxed once they received the dividends.
Stock
Dividends: When dividends are given in the form of additional shares of
the same company or its subsidiary corporation according to the
proportion of the shares owned.
Property Dividends: Property
dividends are paid out in the form of products or services provided by
the corporation. They are paid in the form of assets such as gold,
silver, cocoa beans etc. by companies.
Special Dividends Special
Dividends are offered rarely, such as during times when the company
wins litigation, when the company sells a business or liquidation of
investments. Some companies also offer special dividends when they have
high amount of excess cash, in order to boost the market value of their
stocks. Some times these special dividends are documented as return of
capital, meaning the company is returning a portion of the money
invested by the shareholders and hence these dividends also called
capital dividends, and are tax-free.
Dividends
received can be partially or wholly reinvested in the company?s stock
if the shareholder does not depend on the dividends to make ends meet.
Shareholder accumulate wealth consistently and enrolling in a dividend
reinvestment plan can make the whole process of reinvesting easier as
everything is automated, thanks to the various software programs that
have commendable features, making everything concerned with dividends
just a mouse click away! From the convenience of one?s home one can
find out the latest statistics about dividends and reinvestment
options. One such program is the Corporate Manager Software.
David Gass is President of Business Credit Services, Inc., founder of http://www.SmallBusinessConsulting.com
and co-developer of the Corporate Manager Software which manages the
records of a Corporation or LLC. For a Free Trial of the software visit
http://www.corporateforms.net
