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Homework Solution

What are Some Common Methods of Paying Dividends to Shareholders?

by Sep 30, 2015Assignment Help

A cash payment which is issued to the share holders of a company is usually referred to as dividend. It is generally done by the distribution of profits. Retained earnings or reinvested in business after earning a surplus and paying a tiny fraction of this profit to shareholders is known as dividend.

Dividend is also allocated as fixed sum of money per share, and shareholders shall receive money in proportion with their shares. Paying off dividends is not seen as an expense in joint stock companies; rather it is like distributions of after tax surpluses.

The profit can be distributed in many ways, usually by cash.

By Cash
This form of dividends can be paid in currency but by giving a printed paper check or via electronic fund transfer.

This dividend is taxable to the recipient and this common form of dividend distribution is called investment income.

This dividend is considered to be deduction of retained earnings and appears in a balance sheet instead of Income Statement.

By Stock
As the name suggests, this stock or scrip dividend is paid out by additional stock shares of the original or subsiding corporation. These stocks are also issues keeping in mind all proportions to shares owned by shareholders. There can also be like stock split in cases where payment involves new shares.

By Property
Property dividends are generally paid out by issuing or Subsidiary Corporation in form of assets. This is a rare kind.

By Interim Dividends

These are paid prior to company’s final financial statements and also annual general meeting.

There are other forms of dividend payments as well. Financial assets with capital value can also be distributed as dividends. But the above list includes the most important and commonly used ones. For more related information please have a look at, ‘How do I improve my personal finances?’