What it is:
Dividends are a distribution of corporate earnings to shareholders and usually take place in one of two forms -- cash or stock. A stock dividend is the latter of these two kinds of dividends. Each organization's board of directors determines the actual amount that the firm pay out. Most cash dividends are paid on a quarterly basis, but stock dividends are generally paid at infrequent intervals.
How it works (Example):
When researching a company, it is important to recognize when it pays dividends. However, it is easy to be confused by several different dates a company may specify when informing investors of theirstructure. You should be aware of the following terms:
Dividend Declaration Date: This is the date on which a company's declares that a be paid. The board determines the amount of the , as well as when it is to be paid to shareholders on record.
Dividend Record Date: This is the date on which a company reviews its books to determine its "shareholders of record." Shareholders who hold a particular on this date receive the firm's payment.
Ex-dividend Date: After the has been determined, the exchanges or the National Association of Securities Dealers (NASD) assign the ex-dividend date. The ex-dividend date for is typically two business days prior to the . If an investor buys a before the ex-dividend date, then he or she receive the payment. If an investor purchases the on or after the ex-dividend date, then he or she is not entitled to receive the . On the ex-dividend date, a firm's share price usually declines to reflect the value of the paid.
Why it Matters:
Many investors rely on income. dividends, however, are more like doubling down on an . For the company, dividends are a way to give something back to shareholders without having to give up .payments as a source of
It is important to shares outstanding. This can have a dramatic effect on calculations that rely on the number of shares outstanding, such as per share.that dividends often increase the number of
payments are very important to the relationship between company and investor. Cuts in dividends can anger shareholders and even tank a price.