You may have heard people talking multiple times about how I had purchased shares of that unknown company and now those shares have become quite expensive, meaning that the company is currently earning good profits.
In return, the company has given me so much dividend, which is called benefits. Dividend is the amount distributed to the shareholders of a company. Companies use this as a mode to distribute their profits to their shareholders.
In recent years, profitable major companies have been consistently paying dividends to their shareholders. Dividends can be paid in cash or in the form of additional stocks. If you are not familiar with dividends, a dividend is a payment made by a company to its shareholders from its profits or retained earnings. Here, information is being provided about what dividends are and the different types of dividends that exist.
What is A Dividend?
When a person invests in a business company, they become a shareholder of that commercial company. When the company earns a profit, it distributes a portion of the profit to its shareholders, which is called dividend. The company can choose to give this share of profit to its shareholders in cash or in some other form. However, the decision on how to distribute dividends is made by the company’s management in its general meeting.
In other words, giving dividends or sharing profits depends entirely on the company. Although announcing dividend payments depends on the company’s directors, in reality, most companies in the market are new and reinvest their profits in the company’s expansion. As a result, companies often pay very little or no dividends to their shareholders.
Dividends or profits help reduce the risk of your portfolio. If you have invested your money in a company’s shares or mutual funds, you can choose to receive the option of receiving dividends. In addition, you can earn regular income along with general shares through dividend stocks. However, it is important to note that the payment of dividends is not guaranteed and may vary depending on the financial performance and decision of the company’s management.
How Many Types of Dividends?
Mainly, there are 6 types of dividends or profits, and their details are as follows-”
This is one of the most common types of dividends paid in cash. Cash or cash dividends are sent by the company directly to the bank account of the shareholder. Nowadays, most companies pay dividends electronically, but sometimes companies also pay through payment checks.
Dividends of this type are issued when a company has a shortage of operating cash but still wants to keep shareholders happy by issuing common stock. Shareholders receive additional shares in proportion to the shares they already own, and no additional payment is required for these bonus shares.
The payment of these dividends is made in the form of property instead of cash. If a company lacks operating cash, investors may be paid in the form of non-monetary dividends. Property dividends can be in any form such as assets, vehicles, real estate, etc.
When a company does not have sufficient funds to pay dividends to shareholders, it issues transferable warrants or promissory notes that confirm the payment of dividends on a future date. Such dividends are issued when a company lacks adequate liquidity and needs time to convert its assets into cash.
Liquidating dividend (or liquidating distribution) is a type of dividend that a company pays to its shareholders in cash or assets before fully closing down. A company pays this dividend from its accumulated profits. A company issues such dividend only after fulfilling its other obligations, such as paying off creditors and other debts.
If a company has insufficient assets to pay its liabilities, no liquidation distribution can be made. This is because there is no remaining amount after fulfilling the payment obligations. This typically occurs in the case of liquidation of a company. Liquidation distribution can also occur when a company sells a part of its business for cash and distributes it among the shareholders.
When a company earns higher profits through a scheme or product, it shares this profit with its shareholders. This type of additional profit is called special dividend or special distribution. Special dividends are usually higher compared to regular dividends. The payment of this dividend is done separately from the regular payment policy of the company.
It has been found that generally dividend payments are made in cash. However, in some situations, as mentioned here, dividends can also take other forms.