2. Dividend
Dividends are payments made by
a corporation to its shareholder members. It is
the portion of corporate profits paid out to
stockholders.
When a corporation earns a profit or surplus,
that money can be put to two uses:
it can either be re-invested in the business
(called retained earnings), or it can be
distributed to shareholders.
A dividend is allocated as a fixed amount per
share. Therefore, a shareholder receives a
dividend in proportion to their shareholding.
Dividends are usually paid in the form of cash.
3. Types Of Dividend ?
1. Cash dividend
2. Stock or bonus dividend
3. Scrip dividend
4. Property dividend
5. Bond dividend
4. Cash dividend
It is the normal amount paid to the
shareholders at the end of the year .
Distribution of cash reduces the net worth of
the firm but cash paid to the shareholder only
after careful cash planning of the year.
Dividends which are not paid more than once
in the year is called annual dividend.
Dividends should be declared after the closing
of the accounts of the firm.
5. Stock or bonus dividend
Shareholders do not always receive dividends in the form of cash,
sometimes a firm issues dividend in the form of additional share,
called stock/bonus dividend.
It is a permanent method of capitalization of earnings.
Surplus amount which is distributed in the form of stock
dividends becomes a permanent investment of the company
Stock dividend is also called bonus shares
Shareholders are allowed to sell this stock when they received it.
Stock Dividend – A payment of additional shares of stock to
shareholders. Often used in place of or in addition to a cash
dividend.
6. Scrip dividend
It is a promise to a shareholder to pay a dividend at a
future date
The scrip in the form of promissory note with interest
It is a temporary promise given to the shareholder
when the position of the firm for declaring dividends
is not sound
7. Property dividend
Under exceptional circumstances a firm sometimes
pays property dividend to a shareholder in the form of
asset
These are non–recurring in nature and may be once in
the lifetime of the firm.
The directors would usually not like to issue such a
dividend
8. Bond dividend
Here the company issues bonds by way of dividend
Sometimes the company has no sufficient fund ,
So the DIVIDEND paid in the form of BOND.
Postponement of immediate payment of DIVIDEND in
CASH.
Regular interest to bond holder
Payment made on due date.
9. Factors Affecting Dividend
1.
Policy ?
External factors
a. General state of the Economy
Uncertain Conditions
Depression
Inflation
a. Legal restrictions
Companies Act 1956 ACT….SEVERAL RESTRICTIONS….
a. Tax policy
The Govt. may give tax incentives to companies ,retaining larger
share of their earnings. In such a case the management may be
inclined to retain a larger amount of the firm’s earnings.
10. 2. Internal factors
a. Desire of the shareholders
Capital Gain
For getting Regular Dividend
b. Financial needs of the company
Chance of direct conflict between
Shareholders and Financial needs of the
Company
To maximize Shareholders Wealth
Retain only better Investment opportunities
Financially sound
11. c. Nature of earnings
Stable Earnings
d. Desire of control
The desire shareholder to retain…
The management to retain control over the
company…
e. Liquidity position
CASH OUT FLOW- PAYMENT OF
DIVIDENDS
Insufficient Cash Resources