- Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders.
- Dividends can be issued in various forms, such as cash payment, stocks or any other form.
- A company’s dividend is decided by its board of directors and it requires the shareholders’ approval.
- However, it is not obligatory for a company to pay dividend.
- Dividend is usually a part of the profit that the company shares with its shareholders.
Paying of dividend
- After paying its creditors, a company can use part or whole of the residual profits to reward its shareholders as dividends.
- However, when firms face cash shortage or when it needs cash for reinvestments, it can also skip paying dividends.
- When a company announces dividend, it also fixes a record date and all shareholders who are registered as of that date become eligible to get dividend payout in proportion to their shareholding.