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Introduction And Types of Dividend

Dividend is the part of profits of the company which is distributed among its shareholders on the basis of their shareholding. It should be distributed according to decisions taken and resolution passed in the shareholders’ meeting as well as meeting of Board of Directors.

In other words, it is the amount of profits of a company made available for the distribution among its shareholders.

 

It may be defined as the retu1-n that a shareholder gets from the company out of its profits on their shareholdings.

 

According to the Institute of Chartered Accountants of India dividend is “a distribution to shareholders out of profits or reserves available for this purpose”. Normally dividend may be paid as a fixed percentage on the share capital contributed by them or at a fixed amount per share.

 

Dividend should be declared only out of divisible profits. In any particular year, if there is no profit, dividend shall not be distributed in that year.

 

 

DIFFERENT TYPES OF DIVIDENDS

 

Dividend may be classified according to the mode of distribution as follows.

 

(i)                 Cash Dividend. Cash dividend means shareholders are paid dividend in the form of cash. If the company has sufficient cash balance, it would arrange funds for the payment of dividend.

 

If the company wants to have a stable dividend policy, it would prepare cash budget and meet out the regular dividend payments of the company. The cash dividend may have two classifications i.e., regular dividend and interim dividend.

 

(ii)               Stock Dividend. In any particular year, if the company does not have an adequate cash balance, it might decide to pay dividend in the form of shares. It is known as stock dividend. In this regard, the company issues its own shares to its existing shareholders in lieu of cash dividend.

 

(iii)             Scrip Dividend. Scrip dividend means when earnings justify a dividend, but the cash position of the company is temporarily weak. During this period, shareholders are issued shares or debentures if other companies are held by the company as investment. Such payment of dividend is called scrip dividends.

 

(iv)             Bond Dividend. If the company does not have sufficient funds to pay  dividends in the form of cash, it may issue bonds to its shareholders for the purpose of dividend.

 

(v)               Property Dividend. Property dividends are those dividends which are paid by the company to its shareholders in the form of property instead of payment of in dividend in cash.