What is Dividend?

Dividends are returns paid to shareholders out of the profits of the company.

A company can retain its profit for the purpose of re-investment in the business operations (known as retained earnings), or it can distribute the profit among its shareholders in the form of dividends.A dividend is not regarded as an expenditure; rather, it is considered a distribution of assets among shareholders. The majority of companies keep a component of their profits as retained earnings and distribute the rest as dividend.

Types of Dividend
Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once or twice a year depending upon the company’s profit distribution policy.

Special dividend:
Normally, public companies declare their dividends on a specific schedule; however, they also have the option to declare a dividend at any time. This type of dividend is referred to as a special dividend.

Cash dividend:
Paid in checks, this is the most basic form of dividend. Cash dividends considered a type of investment earnings, and are taxable.

Stock dividend:
Given in the form of bonus shares or stocks of the issuing company or a subsidiary company. Normally, they are offered on the basis of a prorata allotment.

Property (in kind) dividend:
Distributed in the form of assets by the issuing company or a subsidiary company.

Other types of dividend:
Warrants and financial assets having market value are also distributed in the form of dividends.