DIVIDEND

DIVIDEND

Dividends are payments made by a corporate to its share holder members.  It is the portion of corporate profits paid our to stockholders.

                      When a corporate earns profit, that profit can be put in two uses:-

1. Re-invested in the business known as "Retained earnings". In that case the intrinsic or face value of share increase.
2. It can be distributed to shareholders.

Mostly business retain a portion of their earnings and pay the remainder as a dividend.

• A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding.
• Public companies usually pay dividends on a fixed schedule but co-operatives allocate dividends according to member,s activity.
• Dividends are usually paid in the form of cash, store credits and as shares in the company.

Types of Dividends    

• Cash Dividends :- cash dividends are those paid out in currency. This is the most common method of sharing dividends among shareholders.

                                  For each share owned, a declared amount of money is distributed.

•  Stock or Scrip dividends :- Stock dividends are those paid out in the form of additional stock shares of the issuing company. They are usually issued in proportion to shares owned.

• Property Dividends :- Property dividends are those paid out in the form of assets from the issuing corporation. It may be securities of other companies owned by issuer or product & services.

                             In India, companies declaring dividend, are required to pay a corporate dividend tax in addition to the tax leived on their income.

Dividend Yield

Dividend yield tells an investor the yield he/she can except by purchasing a stock. 

            This allows a basis of comparison between other investments such as bonds, certificates of deposit etc.

                 To calculate the dividend yield , divide the annual dividend by a current stock price. Thus-

              Dividend Yield =    Annual Dividend per share / Price per share.