How dividends are paid to shareholders

Document Sample
How dividends are paid to shareholders Powered By Docstoc

Investors whether big or small expect to derive a favorable return on their shares, and the stock
they invest in can be paid out as fixed or variable amounts per share.

The companies that such investors put their money consist of private or public entities, and
public firms normally remit dividends on a regular basis, even though it is also common for them
to declare dividends at different stages, as necessary.

Dividends being the profits derived from the companies' toil through the use of the shareholders
funds for general operational activities which include expansion projects, etc.

The private and public commercial organizations disburse dividends either as store credits, cash
basis or shares in the company. And cash dividends are handed to share holders in the form of
checks, and when investors are paid out through additional shares, they are said to be paid out
in stock or scrip dividends.

Companies can also make dividend payments by offering investors financial assets such as
warrants, or shares in another company related to the same firm (subsidiaries). Property
dividends on the other hand involve payments based on assets which can be in the form of
securities of entities owned by the issuing company. The usual formality around the
disbursement of dividends is that the Board of Directors of the issuing company would make an
official declaration, prior to the actual payment. Thus a liability is instituted in the company
books, to show its obligations to the share holders.

In the area of investing in stocks there comes a day when shares purchased and sold will cease
to pay on the basis of the officially announced dividend. It is a crucial stage for entities with a
huge number of investors, and that extends to exchange based shareholders, because it
simplifies the administrative process of return reconciliation.

All shareholders will be rewarded, regardless of whether they intend keeping or selling their
stock, and any person buying the stock at that stage will naturally not qualify for dividends.

Sometimes the stock price can take a knock resulting in its value decreasing on the ex-dividend
date and as a result the amount may be in the region of the dividends remitted. Such
unwelcome developments on the part of the shareholders are caused by a decline in the value
of the underlying assets, and the company is then compelled to declare dividends, this helps the
entities involved protect their own interests without which investors would simply take

Shared By:
George Chapungu George Chapungu
About Freelance writer