Dividends
What Are Dividends?
Dividends are a share of a company’s profits that are distributed to shareholders as a reward for their investment. This payout is most commonly given in the form of cash, but companies can also issue dividends as additional shares or other forms of value.
Businesses offer dividends to show financial stability, reward loyal shareholders, and attract new investors.
How Dividends Are Paid
Dividends are paid according to the shareholder’s ownership percentage in the company.
For example, if an investor holds 10% of the company’s shares, they will receive 10% of the total declared dividend.
Dividends may be distributed in two forms:
- Cash Dividends
A direct cash payout deposited into the shareholder’s trading or bank account. - Stock Dividends
Instead of money, shareholders receive extra shares of the company. These additional shares are credited to the investor’s Demat/trading account.
Types of Dividends
There are two major types of dividends:
- Ordinary Dividends
These are the most common dividends issued from a company’s current profits. - Special Dividends
These are one-time dividends paid from accumulated reserves or excess earnings.Companies issue special dividends when they have surplus profits not used for operations or reinvestment.
Benefits of Dividends
Dividends offer several valuable benefits to investors, including:
- Regular Income
Dividends provide a steady stream of income, especially useful for long-term investors or individuals seeking supplementary earnings. - Capital Growth
Dividend payments often support stock price appreciation.When companies consistently pay dividends, it enhances investor confidence and may boost share value over time.
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