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FORMSOFDIVIDEND

There are several forms of dividends that companies can distribute to shareholders. The most common form is a cash dividend, where the company pays shareholders in cash using funds from its cash flow or earnings. Other forms include scrip dividends using promissory notes, bond dividends using longer term bonds, stock dividends through additional shares issued without cost to shareholders, property dividends using company assets, and liquidating dividends that return the original capital to shareholders. The appropriate form depends on the company's available funds and financial situation.

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144 views

FORMSOFDIVIDEND

There are several forms of dividends that companies can distribute to shareholders. The most common form is a cash dividend, where the company pays shareholders in cash using funds from its cash flow or earnings. Other forms include scrip dividends using promissory notes, bond dividends using longer term bonds, stock dividends through additional shares issued without cost to shareholders, property dividends using company assets, and liquidating dividends that return the original capital to shareholders. The appropriate form depends on the company's available funds and financial situation.

Uploaded by

shobhadutta0909
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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FORMS OF DIVIDEND

Definition: The Dividends are the proportion of revenues paid to the


shareholders. The amount to be distributed among the shareholders
depends on the earnings of the firm and is decided by the board of
directors.

Forms of Dividend

1. Cash Dividend: It is one of the most common types of dividend paid


in cash. It utilises a company's cash for payout. The board of directors pass a
resolution to pay a certain dividend amount in cash on the dividend declaration
date. It is payable to those eligible investors who hold the company's stock on
a specific date, often the record date. The record date is when dividends are
assigned to the shareholders. On the payment date, the company issues cash
to holders as dividend payments. It is by far the most popular form of dividend
payout. The money shelled out is deposited in the bank accounts of
shareholders. The shareholders are paid in cash as per their shareholding on
a per-share basis. Only companies having positive earnings or cash flow can
distribute cash dividends.
2. Scrip Dividend: Under this form, a company issues the
transferable promissory note to the shareholders, wherein it
confirms the payment of dividend on the future date. A scrip dividend
has shorter maturity periods and may or may not bear any interest.
These types of dividend are issued when a company does not have
enough liquidity and require some time to convert its current assets
into cash.
3. Bond Dividend: The Bond Dividends are similar to the scrip
dividends, but the only difference is that they carry longer maturity
period and bears interest.
4. Stock Dividend/ Bonus Shares: When a company issues additional
shares to its existing shareholders for no extra consideration, it is called a stock
dividend. A company often issues this type of dividend with low operating cash
available but still wants to satisfy investors. Each equity shareholder in such a
case will receive a certain number of additional shares based on original
shareholding. For the company, the number of issued shares in its existing
capital base will increase. Since there is an increase in the share capital, it will
adjust its market price, EPS, DPS, and other metrics based on share capital
accordingly. If shareholder desires cash returns, they can sell the stock in the
secondary market for cash. It is termed earnings capitalisation. If the company
issues below 25% of the existing number of outstanding shares, it is termed as
a stock dividend or a stock split. Retained earnings are utilised for giving this
type of dividend.
5. Property Dividend: These dividends are paid in the form of a
property rather than in cash. In case, a company lacks the operating
cash; then non-monetary dividends are paid to the investors. The
property dividends can be in any form: inventory, asset, vehicle, real
estate, etc. The companies record the property given as a dividend
at a fair market value, as it may vary from the book value and then
record the difference as a gain or loss.
6. Liquidating Dividend: When the board of directors decides to pay
back the original capital contributed by the equity shareholders as
dividends, is called as a liquidating dividend. These are usually paid
at the time of winding up of the operations of the firm or at the time
of final closure.
Thus, it is found out that usually the dividends are paid in cash, but
however in certain situations, there could be the other forms of dividend
as explained above

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