The Types Of Dividend Payments You Should Know Of
Dividends are one off or periodic gains that are received by shareholders of a company. They are a great way of guaranteeing yourself a regular income stream particularly if you have invested in a profit-making company. Shareholders may receive a share of the profit either monthly, every six months or annually. Most companies award their bonuses once every year. There many different types of dividend payments that exist in the city of Florida.
One of the most well-known types is the cash bonus. This type is determined when part of the profit is shared among the shareholders depending on the proportion of shares that each of them holds. The board of directors recommend the amount of money to be given as bonus on the date of declaration. The allocation is done on the date or record while the actual disbursement is done on the date of payment.
The major advantage of giving cash bonus to shareholders is that they get an opportunity to enjoy the economic value of the company. The major disadvantage is that cash bonuses tend to influence the share price. In most cases it is usually by the same proportion. What this means is that when a bonus of 5% is issued to the shareholders, a drop of 5% in the share price should be anticipated.
A stock bonus is another type that a company may consider issuing to shareholders. As the name suggest, this form of bonus is issued in the form of extra shares for every one held. For instance, the board may pass a resolution that shareholders are to receive one share for every two held. This means that an investor with 100 shares for instance gets an extra 50.
Property bonuses are examples of non-monetary bonuses. Since the fair market value of the property tends to differ from the book value the traction is usually captured as either a profit or a loss. The use of property bonuses is preferred by companies that wish to reduce the amount of reported and taxable income.
Another type that a company may considering issuing is what is referred to as a scrip dividend. This is an option for companies that feel that they are not in a strong financial position to issue bonuses for a considerable period of time in the foreseeable future. The scrip bonus is a form of promissory note from the company to the shareholders. In some cases, an interest rate is included alongside the scrip dividend.
Liquidating bonuses are a bit rare. They are usually a one-off payment given to founding members of a company as part of their seed capital. The term is used because this type of dividend becomes necessary when there are plans to wind up a company. The accounting process involved when allocating these pay-outs follow the same principles as cash pay-outs.
Companies may issue one or more of these dividends depending on their financial position and the preference of shareholders. Most investors prefer companies that are paying out dividends on a regular basis. Existing shareholders are also more confident in the company if they are gaining something on a regular basis. The main downside is that the amount of retained earnings is reduced.
One of the most well-known types is the cash bonus. This type is determined when part of the profit is shared among the shareholders depending on the proportion of shares that each of them holds. The board of directors recommend the amount of money to be given as bonus on the date of declaration. The allocation is done on the date or record while the actual disbursement is done on the date of payment.
The major advantage of giving cash bonus to shareholders is that they get an opportunity to enjoy the economic value of the company. The major disadvantage is that cash bonuses tend to influence the share price. In most cases it is usually by the same proportion. What this means is that when a bonus of 5% is issued to the shareholders, a drop of 5% in the share price should be anticipated.
A stock bonus is another type that a company may consider issuing to shareholders. As the name suggest, this form of bonus is issued in the form of extra shares for every one held. For instance, the board may pass a resolution that shareholders are to receive one share for every two held. This means that an investor with 100 shares for instance gets an extra 50.
Property bonuses are examples of non-monetary bonuses. Since the fair market value of the property tends to differ from the book value the traction is usually captured as either a profit or a loss. The use of property bonuses is preferred by companies that wish to reduce the amount of reported and taxable income.
Another type that a company may considering issuing is what is referred to as a scrip dividend. This is an option for companies that feel that they are not in a strong financial position to issue bonuses for a considerable period of time in the foreseeable future. The scrip bonus is a form of promissory note from the company to the shareholders. In some cases, an interest rate is included alongside the scrip dividend.
Liquidating bonuses are a bit rare. They are usually a one-off payment given to founding members of a company as part of their seed capital. The term is used because this type of dividend becomes necessary when there are plans to wind up a company. The accounting process involved when allocating these pay-outs follow the same principles as cash pay-outs.
Companies may issue one or more of these dividends depending on their financial position and the preference of shareholders. Most investors prefer companies that are paying out dividends on a regular basis. Existing shareholders are also more confident in the company if they are gaining something on a regular basis. The main downside is that the amount of retained earnings is reduced.
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