dividends

Examples of dividends in the following topics:

• Dividend Yield Ratio

  • The dividend-price ratio is a company's annual dividend payments divided by market capitalization, or dividend per share divided by the price per share.
  • The dividend yield or the dividend-price ratio of a share is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share.
  • There is no guarantee that future dividends will match past dividends or even be paid at all.
  • Others try to estimate the next year's dividend and use it to derive a prospective dividend yield.
  • Current dividend yield = Most recent Full-Year Dividend / Current Share Price

• Dividends Payable

  • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
  • Dividends are the portion of corporate profits paid out to shareholders.
  • A dividend is allocated as a fixed amount per share.
  • Therefore, a shareholder receives a dividend in proportion to the shares he owns -- for example, if shareholder Y owns 100 shares when company Z declares a dividend of USD 1.00 per share. then shareholder Y will receive a dividend of USD 100 for his shares.
  • Companies that declare dividends must record a liability for the amount of the dividends that will be paid to investors.

• Investor Preferences

  • The significance of investors' dividend preferences is a contested topic in finance that has serious implications for dividend policy.
  • Assuming dividend relevance, coming up with a dividend policy is challenging for the directors and financial manager of a company because different investors have different views on present cash dividends and future capital gains.
  • Investor preferences are first split between choosing dividend payments now, or future capital gains in lieu of dividends.
  • Further elements of the dividend policy also include:1.
  • Stable versus irregular dividends, and 3.

• Residual Dividend Model

  • The Residual Dividend Model first uses earnings to finance new projects, then distributes the remainder as dividends.
  • The Residual Dividend Model is a method a company uses to determine the dividend it will pay to its shareholders.
  • The Residual Dividend Model is an outgrowth of The Modigliani and Miller Theory that posits that dividends are irrelevant to investors.
  • It goes on to say that dividend policy does not determine market value of a stock.
  • The Residual Model dividend policy is a passive one and, in theory, does not influence market price because the same wealth is created for the investor regardless of the dividend.

• Defining Dividends

  • A dividend is allocated as a fixed amount per share.
  • When it is time to make dividend payments, corporations always pay preferred stock owners first, and then common stock dividends are allocated after all preferred dividends are paid in full.
  • Dividends may be allocated in different forms of payment, outlined below:Cash dividends are the most common.
  • In-dividend date is the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend').
  • After this date the stock becomes ex-dividend.

• Dividend Payments and Earnings Retention

  • Dividends are payments made by a corporation to its shareholder members.
  • A dividend is allocated as a fixed amount per share.
  • Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a "special dividend" to distinguish it from the fixed schedule dividends.
  • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:
  • The dividend payout ratio is equal to dividend payments divided by net income for the same period.

• Impact of Dividend Policy on Clientele

  • Change in a firm's dividend policy may cause loss of old clientele and gain of new clientele, based on their different dividend preferences.
  • Suppose Firm A had been in a growth stage and did not offer dividends to its shareholders, but their policy changed to paying low cash dividends.
  • These investors are known as dividend clientele.
  • Of those who prefer dividends over capital gains, there are further subsets of clientele; for example, investors might prefer a stock that pays a high dividend, while another subset might look for a balance between dividend payout and reinvestment in the company.
  • On the other hand, the firm may attract a new clientele group if its new dividend policy appeals to the group's dividend preferences.

• Stock Dividends vs. Cash Dividends

  • Stock dividends, unlike cash dividends, do not provide liquidity to the investors; however, they do ensure capital gains to the stockholders.
  • Cash dividends are immediately taxable under most countries' tax codes as income, while stock dividends are not taxable until sold for capital gains (if stock was the only choice for receiving dividends).
  • A further benefit of the stock dividend is its perceived flexibility.
  • For the firm, dividend policy directly relates to the capital structure of the firm, so choosing between stock dividends and cash dividends is an important consideration.
  • Assess whether a particular shareholder would prefer stock or cash dividends

• Value of a Low Dividend

  • Furthermore, capital gains are taxed at lower rates than dividends.
  • However, under dividend irrelevance theory, the actual value of a dividend is inconsequential to investors.
  • The conflicting theories on dividend policy complicate interpretations of low dividends in real life.
  • If a stock has a low dividend yield, this implies that the stock's market price is considerably higher than the dividend payments a shareholder gets from owning the stock.
  • Conversely, a low dividend yield can be considered evidence that the firm is experiencing rapid growth or that future dividends might be higher.

• Dividend Reinvestments

  • Dividend reinvestment plans (DRIPs) automatically reinvest cash dividends in the stock.
  • In some instances, a company may offer its shareholders an alternative option to receiving cash dividends.
  • The shareholder chooses to not receive dividends directly as cash; instead, the shareholder's dividends are directly reinvested in the underlying equity.
  • This is called a dividend reinvestment program or dividend reinvestment plan (DRIP).
  • The name "DRIP" is generally associated with programs run by the dividend-paying company.