Different Types Of Dividends Given By Companies

A broader definition is that dividends refer to the distribution of rewards from a portion of the company's earnings to its many shareholders. As such, it is not always cash.

Asides the benefits of growing your stock investment in terms of its value, there is the added and sometimes more alluring option of receiving dividends. By definition, dividends are monies paid regularly by a company to its shareholders out of its profits or its reserves.

However, a broader definition is that dividends refer to the distribution of rewards from a portion of the company's earnings to its many shareholders. Many times, when we think of dividends, we think about actual money being paid.

While this is true, there are other ways companies share their dividends without actually giving out cash. Just so you are not confused the next time a company gives you land instead of cash, here is a breakdown of all the different ways companies pay dividends:

Cash Dividends

The most common kind of dividend paid my companies is that of actual cash. It is paid directly out of a company’s profits to investors of the company – the shareholders and it is in proportion to the number of shares the individual has in the business.

For a company that has preference shareholders or preferred stockholders as they are also called, priority payments are given to them first before the common or ordinary shareholders are considered – the same process followed in the event of a liquidation of assets.

For the income or dividend investor, receiving cash is a direct way to track how much additional money is being made and this fund can be reinvested by the purchase of new stock or spent at the discretion of the investor.

Property Dividends

Sometimes, when a company gives dividends, it does so by distributing property as opposed to hard cash. In other words, companies could also issue non-monetary dividends to investors.

How does this work? Well, for starts, it could give anything ranging from its products, to cars, gold, agricultural products and whatever tangible item it considers to be worth giving. Of course, it doesn’t matter if a company decides to share huge stack of pens to its shareholders, it must be recorded in its books.

To do this, the distribution is recorded at the fair market value of the assets distributed. And when the fair market value varies from the book value of the assets, the company records the variance as a gain or loss. While there are many reasons companies opt for this, one of them is to create loopholes in the accounting record of these assets.

Stock Dividend

Another really common kind of dividend is that of stocks. A stock dividend, as implies, represents the issuance of common stocks to common shareholders. This, however, should not be mistaken with a stock split.

A stock dividend occurs when a company issues less than 25% of the total number of its outstanding shares. On the other hand, a stock split occurs when a company issues a higher percentage of its shares than 25%. Stock dividends are also recorded at their face values at the point where the dividend is declared.

Scrip Dividend

Another form of dividend given by companies is what is known as a Scrip Dividend. This form of dividend is often given when a company doesn’t have the money to pay out dividends until the near future. As such, it gives out scrip dividends as a form of credit or promissory note to be gotten by the shareholders at a later date. It is a substitute or alternative to legal tender and it comes with a document acknowledging the credit involved.

Written by Lawretta Egba.