Dividend Resolutions, Proposals & Amendments - Dividend Stocks

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How Dividends Pay Off Cash Dividend

A dividend is a portion of a corporation's earnings distributed to shareholders. Dividend payments are made directly to an investor. Profit or surplus earned by a business corporation can be put to two uses; it can be shared with shareholders or can be retained in the business for reinvestment. A majority of corporations maintain a portion of their surplus as retained earnings and declare a payout of the remaining portion as dividend.

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A good number of stable and secure corporations distribute dividends to their shareholders. However, high growth business corporations seldom distribute dividends since they reinvest their earnings back into the business to maintain more growth. Mutual funds have to mandatorily distribute realized capital gains and interest from their portfolio holdings as dividends to mutual fund investors.

Dividends are distributed in proportion to number of shares held by a share holder in a corporation. Generally, dividends are denoted in accordance with the dollar value each share gets, otherwise known as dividends per share. At times, dividends are denoted in accordance with a percentage of the present market value, known as dividend per share or dividend yield.

Types of Dividends Highest Yield Stocks

Dividends may be allocated in the form of property, cash, or shares in the corporation. Shares or dividend stocks offered may be newly created or existing shares may be bought in the stockmarket. Cash dividends distributed by a company may be ordinary dividends or qualified dividends. An ordinary dividend is a dividend that is taxed at taxpayer's normal tax rate, whereas a qualified dividend is one that is qualified enough to tax at a lower rate. Companies may also propose dividend reinvestment plans wherein a cash dividend distributed is automatically used to buy extra shares for the shareholder.

A majority of dividends are distributed on a quarterly basis. Some dividends are distributed on a monthly, half yearly, or annual basis. A dividend declared by a corporation must be approved by the company's board of directors. The board of directors of a company passes a resolution in the board meeting and decides the dividend amount and frequency of payment.

Dividend Dates Dividends Sample

There are some important dates related to dividends:

  • Dividend date - the date of distribution of dividend to shareholders.
  • Declaration date - date of declaration of dividend by the board of directors.
  • Ex-dividend date - the date after which a share is bought or sold exclusive of a previously declared dividend.
  • In-dividend date - the final day where the stock receives a dividend.
  • Book closure date - the date on which a business corporation will provisionally seal its books for new transfer of shares.
  • Record date - a date in the stock record book that decides payment of a dividend. A dividend will be distributed to those shareholders registered in the stock record book on or before the record date.
  • Payment date - the date of mailing of dividend checks to the shareholders.