What is dividend in stock market

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 What is Dividend :

A dividend can be described as a reward that publicly-listed companies extend to their shareholders, and its source is the company’s net profit. Such rewards can either be in the form of cash, cash equivalent, shares, etc and are mostly paid from the remaining share of profit once essential expenses are met. A company’s board of directors decides the rate of dividends, wherein, the approval of majority shareholders is also factored in.

However, companies may decide to retain their accumulated profits to reinvest in the business or reserve it for future use. Further, announcements about dividend income declaration mostly accompany a significant change in the company’s stock value.

Investors who own shares in a company that pays dividends can benefit from regular income streams, as well as potential long-term growth in the value of their investments. However, it's important to note that not all companies pay dividends, and even those that do may change their dividend policies over time.



Types of Dividends:

A company may pay a dividend to its shareholders in different forms.

Cash Dividend:

This is the most common type of dividend, where the company distributes cash to its shareholders. The cash dividend is usually paid out quarterly or annually, and the amount per share is decided by the company's board of directors. Stock Dividend:

In this type of dividend, the company distributes additional shares of its stock to its shareholders instead of cash. The number of shares distributed is usually proportional to the number of shares already owned by the shareholder.

Assests :

Some companies may reward their shareholders in the form of physical assets, investment securities and real estates. However, the practice of offering assets as dividends is still quite rare among companies.

Calculation of Dividends :

A dividend is calculated by using the dividend payout ratio, wherein, the annual dividend per share is divided by earnings per share. The said ratio can be expressed as –

Dividend Payout Ratio = Dividends paid / Reported net income






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