Introduction
Dividends are typically paid for a fiscal year when the final accounting are completed and the amount of distributable earnings is known. Dividends for a firm’s fiscal year (referred to as a “final dividend”) are due only if declared by the company at its annual general meeting on the suggestion of the Board of Directors. Dividends are sometimes paid by the Board of Directors between two annual general meetings without being declared at an annual general meeting (this is known as an ‘interim dividend’).
Section 2(35) of the Companies Act of 2013 defines the term “dividend.” Any interim dividend is included in the definition of “Dividend.” It is a broad definition, not a complete one. According to the commonly recognised definition, a “dividend” is a company’s profit that is not retained in the firm and is dispersed to shareholders in proportion to the amount paid-up on the shares owned by them.
Dividend Payout Ratio
The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders to the company’s net income. It is the percentage of earnings distributed to shareholders in the form of dividends. The sum not given to shareholders is kept by the firm and used to pay down debt or reinvest in core activities. It is sometimes referred to simply as the payout ratio.The dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share (EPS), or equivalently, the dividends divided by net income.
The dividend payout ratio is a crucial financial indicator used to assess the long-term viability of a company’s dividend distribution programme. It is the amount of dividends given to shareholders in relation to a company’s total net income.
Key Dividend Dates
- Date of declaration
This is the day on which the company’s board of directors declares its intention to pay a cash dividend. A corporation may make a payment one quarter but not the next. Even though a corporation has a history of paying dividends, there is no guarantee that they will be paid until the day of declaration. When a firm declares dividends, it incurs a debt on its books. The declaration specifies the amount of the dividend to be paid as well as the record and payment dates.
- Date of Record (& ex-dividend rate)
The corporation determines which shareholders are entitled to the dividend based on the date of record. Unless the shares are held in street names, a corporation keeps a record of all its shareholders. The term “street-name” refers to the fact that you hold your shares through a brokerage account. In some circumstances, the corporation pays the broker, who then sends the cash dividend into your account. The ex-dividend date is two days before the record date. Investors who possess the stock prior to the ex-dividend date are entitled to the dividend, however investors who purchase the shares on or after the ex-dividend date are not. As a result, the stock’s value falls on the ex-dividend date since it trades without the right to the dividend, and the business’s value falls because the dividend no longer belongs to the firm.
- Date of payment
It is the day on which you will get your cash dividend. If you own your shares through a brokerage account (also known as a street-name account), the firm pays the broker, who puts the cash dividend into your account.
Conclusion
Some businesses provide dividend-paying stocks, which pay out a percentage of profits in cash to owners on a quarterly basis. If you decide to purchase a dividend-paying stock, keep the aforementioned three dates in mind to guarantee that you receive the cash you are entitled to.
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