Dividends are the portion of a company’s profits paid to its shareholders. Think of it as a reward for their investment and trust in the company.
Dividends are usually paid quarterly. The amount of the dividend is determined by the Board of Directors based on the Company’s most recent earnings. By distributing profits in this way, companies aim to encourage and maintain shareholder loyalty.
Dividends can take several forms, depending on how the company chooses to reward its shareholders. The two most common types are cash dividends and stock dividends.
- Cash Dividends: This is the simplest and most popular form of dividend. Shareholders receive a certain amount of money for each share they own in the company, usually on a per-share basis. For example, if a company declares a dividend of $1 per share and you own 100 shares, you would receive $100.
- Stock dividends: Companies, especially those in growth phases, may choose to issue additional shares to shareholders instead of cash. This method helps the company retain cash for reinvestment while still rewarding shareholders. Stock dividends can also help manage the company’s stock price by increasing the number of shares in circulation.
The choice of dividend type and amount varies by company and often reflects its financial health, growth strategy, and priorities. While established companies with stable earnings tend to favor regular cash dividends, growth-oriented companies may lean toward stock dividends to support expansion.