A Brief Note on Dividends

Dividends are earnings that a company shares with its shareholders. It can be in monetary or non-monetary incentives, including cash and shares, etc. The board of directors of a company announces the rate of the dividend after taking into account the approvals of a majority of shareholders.

Dividend Types

Interim dividend: This is a payment of dividends, which a company pays out prior to conducting the annual general meeting (AGM). This is given either quarterly or semi-annually. Interim dividends are proposed and distributed to the shareholders of a company before the publishing of the final financial statements for the entire fiscal year.

Final dividend: It is the amount a company pays as a dividend to shareholders after the company’s financial statements are prepared and issued for the relevant financial year. Generally, it is announced in the AGM.

Special dividends: These are one-time payments, which are also known as extra dividends, that a company makes to a shareholder. Unlike regular dividends, which are offered at regular intervals, a company may reward in cash to shareholders for the unexpected rise in earnings. 

Preferred dividends: It is a dividend that is accrued and paid on the preferred stock of a company. Also, referred to as preferred stock dividends, it is given as a reward to shareholders of preference stocks.

Bonus shares: These are additional shares that a company issues to its existing shareholders without incurring any additional cost on the number of shares already held. Bonus shares are declared in a specific ratio and result in a dip in the share price of the company with the same ratio value.

Dividends, just like common stocks are not guaranteed. At the same time, dividends are more likely to be paid by top-notch companies. These can also become a stable and growing source of income stream.