Paying Dividends

Companies with shareholders who invested money for the firm's operation are required to pay these shareholders through an annual dividend.

All of the company's annual profit may be used in paying dividends while some firms divide their profit between dividends payments and retained earnings, which they use to further invest in other business endeavors.

Paying dividends may be done in a variety of ways. The most popular ones include:

Cash - This is the most common form of dividend payment, where a prescribed value is assigned for every share (such as $0.50 for every 1 share owned). Cash dividend is also called investment income, directly alluding to the money earned by the shareholder in investing their money.

They are issued through checks mailed to the shareholders. Many shareholders prefer this mode of dividend payment because they can readily use the money they earned for their own needs, in the manner they want. However, cash dividends are taxable, which actually decreases the real value of the dividend.

Stock - Instead of cash, the shareholders are issued additional stocks of the company or an affiliate company (subsidiary), increasing the shareholder's investments. The number of new stocks issued are calculated based on the percent of dividend earnings per 100 shares (such as 7%, which means 7 new stock issuances for every 100 shares owned).

Property – This is dividends paid through issuance of assets owned by the company or an affiliate company (also called dividends in specie). This dividend is in the form of securities and ownership certificates, or may also be in the form of product ownership or services privilege.

In paying dividends, the company's Board of Directors formally declare or announce the dividends payment for the year, and the date of payment. The declaration date determines who among the shareholders are eligible to claim dividends based on the shareholder participation date, if they are covered within the declaration date.