What Is a Dividend? - ProsperUs

1. What is Dividend? A dividend is a share of a company’s profit and retained earnings that is then distributed to its shareholders. Those earnings can either be reinvested into the expansion of business or be paid out to shareholders as a dividend. The dividend yield is the ratio of the annual dividend per share (DPS) paid to shareholders divided by the share price. Here is a simple illustration on how the dividend process works:

2. ● ● Company generates profit and retained earnings The management team decides if excess profit should be paid out to shareholders, reinvested in business expansion or kept as a cash buffer for emergencies. The board approves the planned dividend Company announces the dividend and details such as payment date, record date, payment amount and others. The dividend is paid to shareholders, usually directly into shareholders’ bank accounts. ● ● ● Types of dividends The two primary types of dividends that are paid out to shareholders are either via cash or in stock. Companies can also issue a hybrid of cash and stock.

3. Aside from the type of payment method, there are also various types of dividends: ● ● Common dividend – This is given out to all common shareholders Preferred dividend – This is given out to preferred shareholders, a class of shareholders that are entitled for the preferred dividend; and Special dividend – A special dividend is paid outside of a company’s regular dividend policy. This is usually due to excess profit earned during that period that leads to excess cash on hand. ● Important dividend dates to take note of ● Announcement date: Dividends are announced by management on announcement date and must be approved by shareholders before they can be paid. Ex-dividend date: The date on which the dividend eligibility expires. This means that only shareholders who own the stock prior to the ex-date, will receive the dividend. Record date: The record date is the cut-off date to determine which shareholders are entitled to receive the dividend. Payment date: The company will pay out the dividend on the payment date, which is when the money will be credited into investors’ accounts. ● ● ● Read Full Story