Debt Dictionary


Investment Dictionary -> Dividend

Dividends represent payments that are made by a corporate entity to its shareholders. Corporations may approach their profits in two alternative ways: they can either reinvest the surplus or spread it among the shareholders as dividends. Usually, the corporate entities employ a combined approach to their surplus earnings. Corporations keep a portion of their profits as retained earnings while distributing the rest in the form of dividends.

The public companies either pay dividends on a fixed schedule basis or announce special dividends at any given time. The joint stock companies fix the amount of payable dividends to the number of shares held by the shareholders. The cooperatives distribute dividends in view of the amount of work completed by their members. In addition, there are several types of dividends: cash dividends, stock dividends, property dividends, and other dividends. The first kind represents a taxable investment income that is paid to the shareholders in the form of cheques. The second type of dividends represents stock shares issued by a corporation in proportion to the shares already owned. The third type, property dividends, is issued less often in comparison with the other types. This dividend is typically paid in the form of assets, products, or services. The last type of dividends covers shares of subsidiary companies, assets with identifiable market value, and warrants.

Some corporate entities have established their own dividend re-investment plans. The plans enable the existing shareholders to purchase a small number of shares at regular time intervals. Typically, the shareholders buy stock with no added commission and a small price discount. Except for some limited exceptions, they have to pay taxes on the acquired stock. In many states, a form of double taxation is applied to all distributed dividends. Firstly, the corporate entity is required to pay its income tax. Then, the shareholders are obliged to pay income tax on the received dividends.

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