Dividends-The Different Types

By David Gass

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.

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