Forex Trading >

Dividends

A dividend is the distribution or sharing of parts of profits to a company's shareholders.

The primary purpose of any business is to create profit for its owners, and the dividend is the most important way the business fulfills this mission. When a company earns a profit, some of this money is typically reinvested in the business and called retained earnings, and some of it can be paid to its shareholders as a dividend. Paying dividends reduces the amount of cash available to the business, but the distribution of profit to the owners is, after all, the purpose of the business.

Types

The methods of sharing profits are as follows:

• Cash dividends (most common) are those paid out in form of "real cash". It is a form of investment interest/income and are taxable in the year they are paid. It is the most common method of sharing corporate profits.

• Stock dividends or Scrip dividends (common) are those paid out in form of additional stock shares of the issuing corporation, or other corporation (eg its subsidiary corporation). They are usually issued in proportion to shares owned (eg for every 100 shares of stock owned, 5% stock dividend will yield 5 extra shares). This is very similar to a stock split in that it increases the total number of shares while lowering the price of each share and does not change the market capitalization.

• Property dividends or dividends in specie (Latin for "in kind") (rare) are those paid out in form of assets from the issuing corporation, or other corporation (eg its subsidiary corporation). Property dividends are usually paid in the form of products or services provided by the corporation. When paying property dividends, the corporation will often use securities of other companies owned by the issuer.

Dividends must be declared (i.e., approved) by a company’s Board of Directors each time they are paid. There are three important dates to remember regarding dividends.

Important dates to know

Declaration date: The declaration date is the day the Board of Director’s announces their intention to pay a dividend. On this day, the company creates a liability on its books; it now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date.

Date of record: Shareholders who properly registered their ownership on or before this date will receive the dividend. Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.

Ex-dividend date: Is set by the exchange where the stock is traded, several days (usually two) before the date of record, so that all trades made on previous dates can be properly settled and the shareholder list on the date of record will accurately reflect the current owners. Purchasers buying before the ex-dividend date will receive the dividend. The stock is said to trade cum dividend on these dates. Purchasers buying on the ex-dividend date or after will not receive the dividend. The stock trades ex-dividend on these dates.

Payment date: The date when the dividend checks will actually be mailed to the shareholders of a company.

Dividend-reinvestment plans

Some companies have dividend reinvestment plans, or DRIPs. These plans allow shareholders to use dividends to systematically buy small amounts of stock often at no commission. In some cases the shareholder might not need to pay taxes on these re-invested dividends, but in most cases they do.

divdends, ividend, idvidend, dviidend

See also:
Dividend tax
Dividend units
Dividend yield
Stock buyback
• Bid/offer spread
• Stock broker
• Low Cost broker
• Dividends
• Dividend reinvestment program

• Foreign Exchange Market
• Commodity
• Currency
• Euro
• Exchange Rate
• Foreign Exchange Options
• Currency Future
• Futures Contract
• Futures Exchange
• Forex Scams

This article is licensed under the GNU Free Documentation License.
It uses material from the Wikipedia article "Dividend".