Dividends

Dividends, in regards to stocks, refer to the payment a company makes to its shareholders. Before one can begin earning dividends from a company, that person must have bought or had some rights to shares in the company.

Dividends, in regards to stocks, refer to the payment a company makes to its shareholders. Before one can begin earning dividends from a company, that person must have bought or had some rights to shares in the company.

The dividends company pay to its shareholders is usually from the company's profits and earnings. This means investors are paid a portion of the company's profits just because they own shares in the company.

Dividends represent the distribution of the corporate earnings of a company to its shareholders, and it usually takes place in one of two forms, either in cash or stock. If the payment is made in cash to the shareholders, it is commonly called cash dividends. However, if the payment is made in additional stocks to the investor, it is called stock dividends or stock splits.

The organization's board of directors typically determines the amount of dividends that the company would pay out. More often than not, cash dividends are paid to shareholders on a quarterly basis; meanwhile, stock dividends are paid to shareholders at infrequent intervals.

A lot of investors and shareholders depend solely on dividend payment as a source of income so far as they own shares in the company or organization, making them receive a check in the mail usually four times in a year which signifies your share in the companies profits.

We must understand that dividend payment is a crucial tool in building a relationship between the company and its investors. Most companies cut off paying dividends to its shareholders to avoid bankruptcy, but then, doing that not only leaves your company susceptible to market price falling, but also decreased investments from investors and shareholders. 

Further putting the company in a compromising situation whereby, it has to borrow funds from external sources to fund all of its assets and properties, making them go bankrupt in the long run. So you see, the payment of dividends to shareholders can be referred to as an integral part of the company's financial wellbeing and performance.

Dividends collected by shareholders are typically allocated as a fixed amount per the amount of shares the shareholder owns. So a shareholder receives dividends that are proportional to their shareholding.

There are various ways in which companies pay dividends to its shareholders;
•    Cash Dividends:  These are paid out to shareholders in the form of currency, usually by electronic funds transfer or printed paper check. 
•    Stock or Scrip Dividends: Paid out in the form of additional stock to the shareholder. They are issued in proportion to the amount of shares the shareholder owns.
•    Stock Dividend Distribution: These are new shares paid to limited partners in the form of additional shares.
•    Property Dividends: These are usually paid to shareholders in the form of assets by the organization. Though rarely done, they can also include the provision of products and services to the shareholder.
•    Interim Dividends: Now, these are usually paid to shareholders before the general meeting of the company or organization. The paid dividend generally accompanies the interim financial statements of the company.