Dividends

Dividends

Dividends

What is a dividend?

The term “dividend” refers to a form of payment or distribution made by a company to shareholders of the company. The form (e.g. stock, cash) and the amount (e.g. monthly or quarterly) the amount the dividend are determined through the Board of Directors, but must be ratified by shareholders.

The frequency of payout usually occurs quarterly or monthly and, if special dividends have been approved, they will be issued along with the distributions. Dividends may be distributed to a specific class of shareholders but not to different classes (e.g. preferred shareholders, but non-common shareholders).

 

There are many factors to consider when deciding when and if dividends will be distributed which include company earnings net profits, as well as the company’s own needs for reinvestment. Large companies that have regular growth and earnings are known for their more dividends. However, smaller and growing businesses tend to not issue dividends since the money can be better utilized to fund the company’s own expansion.

A business that pays dividends could draw more investors, however other aspects must to be taken into account when a business decides whether or not to distribute dividends. In the case of example when a business is unable to keep up with an anticipated dividend distribution, investors could conclude that the business isn’t doing as well as it did when the dividend was first instituted. The result could lead investors to seek out alternative investments, both for greater returns as well as a better company.

 

Increased dividends may boost trust in management at the business and draw the attention of investors. However, suspicion could be raised if there was an unusually high dividend increase, indicating that the company is in desperate need to attract investors. In the same way, a drastic reduction in a company’s dividend typically indicates that the company is experiencing financial difficulties.

What is a Dividend Yield?

It is an important indicator for evaluating the company’s performance against its competitors and past performance.

The dividend yield is a measure of the amount of cash an investor will receive in relation to the amount of capital needed to buy shares in the company. It is a measurement that allows investors to assess companies with different prices for their stocks and dividends. It can also indicate whether the investment in a particular company has a growing or declining earnings potential, regardless of the dividend or stock price.

The formula is simple:

Dividend yield = (Annual Dividends Per Share/Price Per Share)

 

There are many companies that pay dividends to shareholders.

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