Companies need a strong foundation of funds in order to cater the needs and the demands the business might face in the growing industry. As the company continues to be successful in the market, the stockholder or the investors of the company will gain its profit through dividend.
Dividend is the amount paid to the shareholders of the company out of the companies’ current or retained earnings. This may come in the form of cash, stocks and even property. The company that offers stocks as dividends are mostly companies that have progressed much beyond the growth phase.
Forms of Dividends:
Cash dividends are pay outs of the company’s profit to its shareholders. If preferred stock dividend is to be given, this will be agreed by the Board of Directors before any penny will be released.
Property dividends are properties given to shareholders instead of a cash or stock dividend. This would literally mean tangible values like gold, salad dressing, pencils and the like that proprietor value.
Special One- Time dividends are rare one time dividends given to shareholders in cases such as a win in a lawsuit and business sale. This can be in a form of cash, stocks or property. This special one-time dividend is sometimes refered to as return of capital which means to say that the company is literally not paying out the shareholders for profit but it is only returning the capital amount of their investment.
To the investors, receiving dividend is a good sign that the company is making a splash in the market since this guarantees a return of their investment be it in cash, stocks or property. However, these investors have their choice whether they want to retain the payment or use it for their own reasons.
Some shareholders move away from stocks that offer a dividend for this main reason: companies that give its shareholders a dividend may not use the money to expand the business. As compared to companies that do not give dividends, they use the company’s profit, instead as a dividend, to venture and expand out in a new business.
The dividend given to the investors are usually paid out by the company in quarters. Most of these companies that pay a dividend also offer a dividend reinvestment program.
What does a dividend reinvestment program mean? This is synonym to retained earning in which instead of taking the dividends as payment, the shareholders can choose to retain and reinvest each dividend payment and take the value of the dividend in stock instead of cash. In this case, the investor would receive higher value of the stock. By having more stock dividends reinvested, an investor can easily increase his or her share stock holdings.
To invest is to put money in the business. It needs careful planning, research, trial – and –error and of course luck for you to go along the way. Depending on your investment needs, a stock that offers a dividend can be a profitable long-term investment.