Dividends - Explained
What are Dividends?
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Table of ContentsWhat are Dividends?How are Dividends Used?Academic Research on Dividend
What are Dividends?
Corporations distribute a part of their after-tax revenue among the shareholders of the company in accordance with the number and class of shares held. This distribution is known as a dividend.
How are Dividends Used?
The dividend can be paid by cash or as shares of stocks or any other property. The cash dividend is the most common form of paying the dividend. The Board of Directors determines and manages the dividend, but it must be reviewed and passed by the shareholders. Publicly-held corporations generally pay dividends (if at all) on a quarterly basis. Smaller companies generally pay dividends yearly. Companies like Walmart Inc. and Unilever pay the dividend to its shareholders in each quarter. Companies can declare non-recurring special dividends in addition to the regular dividend. The profit made by a company is mostly utilized for ongoing and future business activities. A small portion of the revenue is generally distributed as the dividend. Sometimes, companies pay the dividend even when they have not made a sizable profit. They continue to give the dividend to maintain their regular dividend dispatch record. The preferred stockholders get their dividend payment first. They normally receive at a fixed rate. The ordinary shareholders dividend depends on the revenue made by the company and its need for cash for future businesses. Mutual funds and exchange-traded funds also pay dividends to its shareholders. Oil and gas, financial and bank, basic material, healthcare, and pharmaceuticals companies are proven to be the best dividend payers in the U.S. The early stage startups or growth-stage companies have a high investment in technology and marketing generally do not pay a regular dividend. These companies need the revenue to build up business and expand the operations. So, it may not be a viable option for them to offer a regular dividend. The companies at the mid-stage of growth often restrain themselves from paying a dividend to use the profit money in the further development of the business.