Dividends are company profits paid to shareholders of the company.
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Dividend payment can come in the form of cash payments or reinvestment to own more shares in the company. Investors view dividends as indicators of a company’s financial status.
Types of Dividends
- Cash Dividend: Company profits are paid in the form of cash to shareholders, usually paid to a brokerage account .
- Stock Dividend: Instead of cash, shareholders are paid with additional shares.
- Asset Dividend: Although this is not a common practice, companies can pay shareholders with physical assets, real estate, properties and so on.
- Scrip Dividend: Payment in the form of promissory notes. These notes can be converted into shares or cash.
How to calculate dividend yield?
Valuing dividends occurs on a per-share basis. Determining the company’s dividend yield involves dividing the annual dividend by the share price over a defined period. For instance, if you hold 100 shares in company ABC, and the company declares an annual dividend payment of 10.00NGN per share. Therefore, at the close of the year, you will receive a total of 1000.00NGN (10.00NGN x 100 shares) in dividend payments annually.
How frequently do companies pay dividends?
The frequency of company profit payments to shareholders differs from company to company. It could be monthly, quarterly, or annually depending on the company’s payment policy.
How do Dividends work?
A company can either pay excess profits generated to shareholders or reinvest them in the company. The company’s board of directors approves the decision to pay dividends to shareholders. The company then declares the dividend per share along with the payment date. Shareholders receive profit payments on the approved date.
Does Dividend affect Stock Value?
High dividend payment signifies financial stability, which will attract more investors leading to high demand for a stock. High stock demand followed by limited supply will increase stock value on the stock market. Still, companies must be careful not to pay out too much in profits and neglect re-investment opportunities.
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