Dividend

Dividend

What is the dividend meaning

As the word root suggests, a sum of money is divided to make dividends. Therefore, literally speaking, a dividend is a part of a larger payout someone is entitled to.

What are dividends

Owning a stock of a public company means being its shareholder i. e. one of its owners. As such, you’re entitled to a part of the company profit proportionate to your ownership as you’d be in any other case where you have a share of a business. After taxes and all due payments, company revenue is reduced to net income. The latter may be distributed among shareholders as dividends. Therefore, a dividend is a part of the company profit that you get as a company shareholder.

What is the dividend payout ratio

As mentioned above, company net income is distributed among shareholders as their profit – but not all of it. A part of income is held to be reinvested in the business – that’s retained income. The remaining part is what shareholders receive, and the percentage this part makes in the total net income of a company is the dividend payout ratio.

Also, a dividend policy is the policy a company uses to structure its dividend payout to shareholders.

Why are dividends good

When you trade or invest in stocks, you have two types of income: value gains and profit. Value gain refers to a case when you sell a stock at a higher price than the one you’d bought it at. It’s similar to closing your trade with profit with any other asset such as currency or commodity. The second type of income is dividend income: you get a quarterly cash payment on your stock holdings whatever their value change has been. Therefore, trading stocks not only enables you to potentially have more profits but makes a buy-and-hold approach beneficial.

What are dividend types

Cash is not the only form a company profit can be paid out as to the shareholders. It’s the most common, though. Here is the full list of dividend options.

  • Cash dividend: you get paid in cash
  • Stock dividend: instead of money, you get your part of the company profit as additional stocks.
  • Property dividend: you get items of value, e. g. art
  • Scrip dividend: a “postponed” cash dividend that works like a bank deposit – you receive not the dividend value but a value plus interest on it after a certain period following the date when the dividend was assigned.

When are dividends paid

Normally, dividends are quarterly payments. That means, you receive your share of the company profit every three months.

Here is the FBS dividend calendar with the expected dates of the corresponding dividend payouts

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2024-05-21 • Updated

Frequently asked questions

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