Dividends are profits the company distributes to shareholders. The companies don’t do this out of the kindness of their hearts – this is what a company is all about; making money for the owners.
Most companies pay dividends in the form of cash, although you may hear of occasions when a company uses stock instead. Many investors are attracted to stocks with a good history of paying dividends. These companies are usually well established and profitable, but may not offer much in the way of growth potential.
The company’s board of directors sets the dividend at a quarterly meeting. It is important to note that they are under no obligation to pay a dividend. If the company is hurting financially or the board is concerned about future prospects, it can forego the dividend.
The board sets the dividend rate at a per share basis. For example, the board may declare a quarterly dividend of Rs 0.50 per share. This means if you own 100 shares of stock, you will get a check for Rs.50 for that quarter.
• The Declaration Date: This is the date the board sets the dividend and announces when the stockholders will get their checks. The board also announces the Ex-Dividend Date, which is a very important date to know.
Types of Dividends