Every company aims to maximize its profits. Profit is the amount of money available to the company after all business expenses have been paid for. These expenses may be paid out of sales revenue or from cash available with the company.

A company has to account for various other expenses such as depreciation, income tax and interest before it can arrive at its actual amount of profits. These expenses are incurred in addition to various direct and indirect costs incurred by the company. All expenses and incomes are reported on the profit and loss account of the company.

What is Dividend?

Amount of net profits available with the company can be reinvested in the company or can be paid out as dividend to shareholders. A company can also adopt a combination of reinvestment of profit and distribution of dividend to shareholders depending on its expansion plans and decision of the company’s board. Whenever people invest money in a company, they expect returns on their investment in two forms: capital appreciation of their shareholdings and dividend on shares held by them.

When is Dividend Declared?

Dividend is generally declared at the end of the accounting year after preparation and finalization of books of accounts. This is because a company has to ascertain the amount of profits that can be distributed as dividend to shareholders. In case a company’s profitability is low in any accounting year, it may not distribute dividends to its shareholders. Similarly a company which has major expansion or diversification plans in the near future may not provide dividend to its shareholders as profits may be required to meet various business requirements arising out of such plans. Date on which dividend is declared by the board of directors is called “Declaration Date”. On the date of declaration itself, the date of record and payment of dividend is also announced by the company’s board.

What are the Common forms of Dividend?

Dividends are frequently paid in cash. However, dividends can be paid through issuance of extra stocks to the current shareholders in proportion of their shareholdings in the company. This is called stock dividend. Dividend can also be paid in the form of an asset. This form of dividend is called property dividend. Even though there are other forms of dividends, cash, stock and property dividends are the most common forms of dividends paid by companies.

What is the Amount of Dividend for a Shareholder?

Cash dividend is generally declared on per share basis. For Instance, a company may declare a cash dividend of $ 1 per share. So in case a shareholder holds 100 shares in a particular company, he/she will get $ 100 on his/her shareholding. A company’s share may be trading at a value of $ 100 at the time of dividend declaration, but that does not mean that the shareholder will receive a dividend on the total value (in this case $ 10,000) of his/her holding.

Amount of dividend can be calculated by multiplying dividend per share with the number of shares held by an investor/shareholder. In case a stock dividend has been declared by the company, a shareholder will receive additional shares. For Instance, a company has declared a stock dividend of 5 %. So in case a shareholder holds 1000 shares in the company, he/she will receive 50 shares as stock dividend from the company.