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Dividends - What are Dividends?

Definition: Dividends are payments made by the company to its shareholders and are paid in proportion to the individual’s shareholding.

When a company is profitable at the end of the year, the amount can be ploughed back into the company, paid out in dividends to its shareholders, or both.

A shareholder will receive a dividend - a portion of the company's profit - in proportion to their shareholding. This is because dividends are allocated as a fixed amount per share held by the shareholder.

Forms of payment

Dividends can by paid by a company to their shareholders in a number of different ways.

  • Cash dividends: These are the most common type of dividend, and they are those paid out in the national currency of the firm, typically by electronic transfer or check. Cash dividends are usually taxable to the recipient in the year they are paid.
  • Stock dividends: These are dividends that are paid out in the form of additional shares of stock from the corporation, or a subsidiary corporation.
  • Property dividends: These dividends are paid out in the form of assets from the corporation.
  • Interim dividends: These are dividends which are made before a company's annual general meeting (AGM) and final financial statements are finalized.