A dividend is a portion of a company’s earnings received by a shareholder. It’s a way for a business to distribute profits to its owners.
Dividend means divide – in this case, among shareholders. Companies are not obliged to pay a dividend. They must first have confidence in their financial position. The decision to issue a dividend sits with the board.
A dividend can be delivered in a number of ways, such as via cash payments, additional shares or even property. Cash is the most frequent type of dividend. The company will decide how much is paid per share. Shareholders collect that amount for each share they own.
Many factors can affect a business’s decision to issue dividends. A mature company with steady market share and reliable profits might pay dividends while a younger company may reinvest surplus cash into things that will grow the business.
Some investors value dividends as a form of steady income. They will put their cash into dividend-paying companies. Others value capital gains and may happily forego dividends if the business is successfully reinvesting its surplus cash into growth. The expectation is that growth will increase the value of the company and its shares. Investors can realise these gains when they eventually sell their shares.
Dividends are usually paid on a scheduled basis like quarterly or annually. Companies can issue interim dividends at any time during the year, while a final dividend is paid after the company’s Annual General Meeting (AGM).The dividend payment process is typically steered by a company’s board of directors.
Dividend received = Dividend per share x Number of shares
To calculate annual dividends, add all dividends received during the year.
When deciding how much to pay out, a company will consider many factors such as annual profits, the equity of the business, and budgeted expenditure for the upcoming year. Once an amount is agreed, it’s divided by the number of shares that exist.