Home » Glossary » Dividend

Dividend

Definition

What is a dividend?

A dividend refers to a share that a company distributes to its shareholders from its accumulated earnings and profits. It can be in the form of cash payments, assets, and additional stocks. 

Declaration of dividends reflects a company’s earning capabilities. Some companies disburse lump-sum payments to reward their shareholders. Although not all businesses can pay out dividends, there isn’t a law obliging companies to do so.  

A board meeting is done to check if there is available profit before declaring dividends. The total dividend to be given to shareholders will then be decided by the board of directors. As for its release, it needs the shareholder’s approval before it is issued. 

Examples of well-established companies that can disburse dividends are Apple, Microsoft, Wells Fargo, and Verizon. 

dividend
What is a dividend?

Two classifications of dividend

There are two classifications of dividend – preferred dividend and common dividend:

  • Preferred dividend – given to shareholders with preferred shares. Preferred dividends are prioritized over common dividends. 
  • Common dividend – given to shareholders with common shares. Common shareholders are always the last in line in terms of dividend payments.  

Types of dividends

Dividends are usually paid per share basis. Here are the types of dividends that companies can choose to pay out to their shareholders. 

Cash dividends

This is the most common type of dividend. It is a payment in cash form directly to investors’ brokerage accounts. 

Stock dividends

Stock dividends are given through additional shares. It is paid out for a specific period and is usually tax-exempt. 

Property dividends

Property dividends refer to the company’s assets such as real estate, stocks, investment securities, and other properties. 

Liquidating dividends 

Liquidating dividend is a type of dividend that is disbursed to shareholders as a part of a company’s liquidation process. Moreover, the liquidation process is done when a company decides to stop running as it can no longer sustain its daily operations.   

Liquidating dividend is paid to shareholders as a return of capital and is usually non-taxable.

Types of dividends

When are dividends paid?

Below are three essential dates for allocating dividend payments: 

Declaration date

This is when a company’s management declares there is a dividend to be paid. The board of directors will then vote on whether to pay it, including the date on which the dividend will be issued. 

Ex-dividend date 

This is the date when a company determines which shareholders will receive dividends. It is an important date for investors as they need to own a stock before the ex-dividend date to receive a dividend. 

Payment date

This is when the dividend is credited to shareholders. 

Some companies choose not to pay dividends. Instead, they reinvest the profits in the business itself to sustain its growth and expansion. This also means more capital gains for shareholders. 

Generally, companies issuing dividends aim to attract more investors. The issuance of dividends keeps major investors consistently buying a company’s stocks. If investors continuously reinvest in a business, it will lead to huge earnings and a much higher stock price. 

Get Inside Outsourcing

An insider's view on why remote and offshore staffing is radically changing the future of work.

Order now

Start your
journey today

  • Independent
  • Secure
  • Transparent

About OA

Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO).

The #1 outsourcing authority

Outsource Accelerator offers the world’s leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing suppliers and the businesses – clients – across the globe.

The Outsource Accelerator website has over 5,000 articles, 350+ podcast episodes, and a comprehensive directory with 3,000+ BPO companies… all designed to make it easier for clients to learn about – and engage with – outsourcing.

About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.