Dividend indicates a part of company's profit which is distributed among all its shareholders.The amount which has to be distributed is decided by board members of a company. Dividend is one important way through which companies communicates about its financial health to its shareholders. Through this distribution from profit , companies indicates their good performance.This ability and willingness of paying stable dividend helps to create good picture of fundamentals of company. Traders can use experts advise on trading tips, mcx tips to ensure their good returns from market. A company which should not declare dividend if it is not able to earn sufficient profit.
Following are the types of dividends:
1) Property dividend
Company makes payment through some value assets in property dividend. Here value asset can be anything like inventory, machine, equipment , vehicle etc. The values of these assets are required to be restated at its fair value for issuing property dividend.
2) Cash dividend
It is most common type of dividend paid by companies to its shareholders. Board of directors decides certain amount which has to be paid to all its shareholders on a specific date. Companies which are highly liquid prefer to pay dividend in the form of cash.
3) Final dividend
An amount is paid annually which is declared by board of directors and approved by shareholders in general meeting. It is called as final dividend because usually paid after the finalization of company's account.
4) Bond dividend
When a company do not have sufficient cash to pay as dividend it may issue bonds to its shareholders. These bonds have longer maturity date and carries interest as well. However this form of dividend is not practiced in India.
5) Scrip dividend
It is a dividend paid in the form of promissory notes to pay a amount at some specific future date. A company which is usually cash rich but temporarily not in a position to distribute cash dividend may opt for this. Scrip dividend was allowed before Companies Act 1960 but stopped after it.
Some advantages of dividend are discussed below:
1) Investors usually prefer to invest in shares of companies who pays regular dividend as it gives them a reliable source of earning even when market is not performing well.
2)With dividend paying stocks investors do not have to sell them to participate in growth of stock. They can gain monetary benefits from stocks without actually selling them in the market.
3) When a company announces dividends it conveys a positive message among its shareholders that is performing well and likely to earn good profit in future as well.
Stock market investors needs to have good familiarity with different market terminologies in order to perform well in market. Use of financial advisory services is also helpful in earning profitable returns from market.There are several benefits of distributing dividends and also it is a good way to keep investors happy, however less liquid companies should avoid distributing it.Before framing dividend policy a company must check for its advantages and disadvantages.