Dividends are the type of payments which are made by any corporation to the members of the stakeholders. Besides, it is also the portion of the corporate profits which are paid out to all the stakeholders. When any corporation earns any surplus or profit, that the money can be put to two types of uses, which can either be distributed to the stakeholders or can be re invested in any business. There are also two ways to distribute the cash to the stakeholders: dividends and the share repurchases. There are a number of companies also retain the portion of earnings and also pay the balance as dividend.
For any joint stock company, the dividend is assigned as the fixed amount on every share. Thus, the shareholder gets the dividend in proportion to the shareholding. For any joint stock company, paying the dividends is not counted on as an expense, rather, this is the division of the after tax profits among all the shareholders.
The retained earnings are presented in the section of shareholder equity in the balance sheet of the company-similar as it issued the share capital. Commonly the public companies pay the dividends on the fixed schedule, but can declare the dividend at anytime, known sometime as a special dividend to differentiate it from fixed schedule dividends.
On the other hand, the cooperatives allocate the dividends according to the activity of the members, so often the dividends are counted on as the Pre-tax expense. Usually, the dividends are paid in the form of store credits, cash and shares in any company. Further, a number of public companies provide dividend reinvestment plans that automatically use cash dividend to buy the additional shares for all the shareholders.
What are the forms of the dividend payment?
Scrip or stock dividends: This kind of dividends are paid out in the way of the additional stock shares of issuing or another type of corporation like as the subsidiary corporation .
Cash dividends: This method is most common among all commonly through the printed paper check or electronic funds transfer. This kind of dividend is a type of the investment income and can also be taxable to the receiver in that year they are paid.
Property dividends: This kind of dividend payment method are those which are paid out in the type of assets from any issuing corporation or another type of corporation like subsidiary corporation. This kind of dividend is very rare.
Other kind of dividends: It can be used in the structured finance. The financial assets with the known value of the market can be divided as the dividends. In some cases, the warrants are distributed in this method.
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