What is Dividend?

What is Dividend?

A dividend is the distribution of profits to a shareholder, as determined by company’s board of directors. The dividend is payable to the shareholder who has company’s shares in the demat account before the ex-dividend date. Dividend may be paid out as cash or in the form of stock. Dividends are payments made by the publicly listed companies as a reward to investors for putting their money into the venture.

Understanding Dividend:-

A dividend is a token reward paid to the shareholder who has shares of the company before the ex- dividend date, and this dividend is made out of companies net profits. While some portion of the company’s net profits is kept with themselves to be used for the company’s ongoing and future business activities, while the remaining net profit can be distributed as dividend. To keep the track record of the company, the company may still make dividend even when they don’t make suitable profits. The dividend can be paid on monthly, quarterly, annually basis which is decided by the board of directors of the company.

Dividends must be approved by the shareholders through their voting rights. Although cash dividends are the most common, dividends can also be issued as shares of stock or other property. Along with companies, various mutual funds and exchange traded funds(ETFs) also pay dividend.

What is Dividend announcement date?

Dividend payable to the shareholders of the company is announced or declared on the dividend announcement date and must be approved by the shareholder before they can be paid.

What is Ex-dividend date?

The date on which the dividend eligibility expires is called the ex-dividend date or simply the ex-date. The shareholders who buy stock after the ex-date will not be eligible for dividend.

What is Record date?

The record date is the cut off date, established by the company in order to determine which shareholder are eligible to receive a dividend or distribution. 

What is Payment date?

The company issues the payment of the dividend on the payment date, which is when the money gets credited to investors accounts. 

What Is an Example of a Dividend?

When a company has a healthy cushion of net profits, it may decide to share the wealth with its investors. In turn, the board of directors may decide to issue a 5% dividend per share, annually. If the company’s shares were worth 100, the dividend would be worth 5, and if the dividends were issued on a quarterly basis, each would be valued at 1.25.

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