What is Dividend? and Types of Dividends

Meaning and Definition of Dividend

The term dividends refers to that part of profits of a company which is distributed by the company among its shareholders after execution of retained earning. It is the reward of the shareholders for investments made by them in the shares of the company. In other words, it is the return that a shareholder gets from the company out of profit on his shareholding.

According to the Institute of Chartered Accounting of India___” A dividend is a distribution to shareholders out of profit or reserves available for this purpose”.

Forms/Types of Dividends

Dividend can be classified in various forms. Dividends paid in the ordinary course of business are known as Profit Dividends. While dividends paid out of capital are known as Liquidation Dividends. Dividends may also be classified on the basis of medium in which they are paid.

Dividends

On the basis of types of Shares

1. Equity Dividend: Dividend paid on equity shares called as equity dividend. Generally dividend on equity shares is recommended by the board of directors depending upon profit of the company. Rate of dividend is not fixed. It depends upon the recommendation of directors which in depends upon the profit and future requirement of funds of the company.

2. Preference Dividend: Preference dividend is the dividend paid to preference shareholders. The preference dividend is paid at pre-determined rate and like equity shares,dividend on preference shares is also recommended by the board of directors.

On the basis of Modes of Payment

1. Cash Dividend: The board of directors vote and propose on the declaration of dividends. It is not paid immediately because transfer of stock from one holder to another require a current list of stockholders be prepared. For this reason, there is a date of declaration of dividend on meeting of the board of directors.

2. Bond Dividend: Sometimes companies pay dividend in the form of debentures or bonds or notes for along term period learning interest at fixed rate. The effect of bond dividends and dividend in scrips is the same.

3. Composite Dividend: When dividend is paid partly in the form of cash and partly in other form, it is called as composite dividend.

4. Property Dividend: A property dividend is a nonreciprocal transfer of non monetary assets between an enterprise and its owner. It is payable in form of assets other than cash. They may be in the form of merchandise, real estate, or investments.

On the basis of Time of Payment

1. Interim Dividend: Generally dividend is declared at the end of financial year, but sometime company  pays dividend before it declares divide in its annual general meeting. In other words, we can say that it is dividend paid between two annual general meetings.

2. Regular Dividend: Dividend declared in annual general meeting is called as regular dividend. Every year company declares dividend in its annual general meeting.

3. Special Dividend: Wherever there is any huge/abnormal/extra profit, company should declare it as special dividend. So that the shareholders do not expect for the same in each year, the basis purpose of this special dividend is to convey the shareholders that this is a special dividend and will not be paid every year.