What Are Dividends?

Dividends refer to the portion of what a company earns for a certain period that is returned to its shareholders. When a certain company earns profits for a certain period, usually a year, a part of the profits is being shared to owners of the company’s stocks which represent a stake in the said company.

In simple terms, the dividend is the earnings of a share of stock that is paid accordingly to the amount of shares owned by the stockholder.

Modes of Dividend Payment

Different types of dividends can be paid to shareholders in different forms. The primary means is usually cash which is also the most common means used by most companies. Such payments usually come in the form of a check and are usually taxable in the period when such payments are given to stockholders.

Stock Dividends

Aside from cash, some companies may offer stockholders dividend payments in the form of additional stocks. Also known as scrip dividends, this type of payment offers stockholders ownership of additional stock by the issuing company in place of receiving cash. Such dividends are usually given in proportion to the number of shares currently owned.

Property Dividends

This is a type of dividend that is paid to stockholders in the form of assets that belong to the issuing corporation or of a subsidiary corporation. Such type of dividend payment can also be made in the form of a corporation’s products or services. Property dividends are considered as a rare form of dividend payment.

Other Forms of Payment

Cooperatives may have the option to either retain their earnings or distribute a part or all of it to its members. The distribution of the dividends usually is determined according to the activity of the member in the said cooperative, rather than the portion of the member’s shareholdings. Co-op dividends are usually considered as pre-tax expenses.

There is also the patronage dividend that refers to a type of dividend usually paid to members of consumer cooperatives. Such dividends are usually allocated according to the amount of trade a certain member does with the co-op. The more the member patronizes or does business with the co-op, the bigger the dividend is allocated to him or her after a certain period.

 

Posted by Ardent Editor on Mar 18 2009 in Investment

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