A dividend is a portion of the total profitable earnings of an organization which is distributed among a company’s shareholders on the basis of their percentage in regard to their shareholding. This distribution is done as per the decision taken and the resolution passed in the meeting of shareholders as well as of that meeting between the Board of Directors of a company. This dividend can be in any form, like- cash, stock, property.
The dividends of a company are declared only out of divisible profits. It is important for a shareholder to know that if a company earns no profits in a financial year, dividends will not be distributed in that year.
Definition of Dividend
The Chartered Accountants of India has defined dividend as the distribution of earnings among shareholders in regard to the reserves or profits which are available for the same in that company. Either the dividend will be distributed as a fixed percentage on the entire share capital contributed by each shareholder or at a pre-determined fixed amount per share.
Types of Dividend
Dividends are classified as per their mode of distribution. These modes are as follows-
As the name suggests, these dividends are paid in the form of cash. This money is distributed out of an organization’s present earnings or incurred profits. These need to be declared by that company’s Board of Directors.
This cash dividend can be of two types- regular dividend and interim dividend.
In case if a company is unable to pay dividends in the form of cash due to insufficient cash balance, it can even pay dividend by distributing its shares. This distribution is known as stock dividend where a company dispenses its shares to its shareholders as dividends.
At a time when even though earnings validate a dividend, the cash balance of that organization is on a weaker side. During such a crisis, shareholders are distributed debentures and shares of other firms owned by that company as an investment. This form of dividend is known as scrip dividends.
Another option which an organization can apply during insufficient cash is by issuing bonds to their shareholders. Such a form of dividend distribution is termed as Bond Dividend.
When all other above options fail, the company distributes dividends in the form of property to its shareholders. Such a distribution is called Property Dividend. However, this form of dividend distribution is very rare.