Question

Define the term dividend ? Explain the verious type of devidend given by a company.

Answer 1

Answer:

A dividend’s value is determined on a per share basis and is to be paid equally to all shareholders of the same class (common, preferred, etc.). The payment must be approved by the by the board of directors.

When a dividend is declared, it will then be paid on a certain date, known as the payable date.

Types of dividends

There are various types of dividends a company can pay to its shareholders. Below is a list and a brief description of the most common types shareholders receive.

Types include:

Cash – this is the payment of actual cash from the company directly to the shareholders and is the most common type of payment. The payment is usually made electronically (wire transfer), but may also be paid by check or cash.

Stock – stock dividends are paid out to shareholders by issuing new shares in the company. These are paid out pro rata, based on the number of shares the investor owns.

Assets – a company is not limited to paying distributions to its shareholders in the form of cash or shares. A company may also pay out other assets such as investment securities, physical assets, real estate, and others.

Special – a special dividend is one that’s paid outside of a company regular policy (i.e., quarterly, annual, etc.). It is usually the result of an excess cash build up.

Common – this refers to the class of shareholders (i.e., common shareholders), not what’s actually being received as payment.

Preferred – this also refers to the class of shareholder receiving the payment.

Other – other, less common, types of financial assets can be paid out such as options, warrants, shares in a new spin-out company, etc.