Dividends are the distribution of a portion of a company’s earnings to a class of its shareholders as determined by the company’s board of directors. When a corporation earns a profit or a surplus, it is able to pay a share of the profit to the shareholders as dividends. Dividends of a company are decided by its board of directors and require the approval of shareholders. However, it is not mandatory for any company to pay dividends. Dividends are usually a portion of the profits that the company shares with its shareholders. Not every company pays dividends, but there is often a slow and reliable increase in them. The distribution to shareholders may be in cash (usually deposited in a bank account) or if the corporation has plans to reclaim dividends, this amount can be paid through further share issues or repurchase of shares. In some cases, the distribution may be of property.
The value of dividends is determined on a per-share basis and is to be paid equally to all shareholders (general, preferred, etc.) of the same category. Both private and public companies pay dividends, but not all companies prefer to pay them, and no law firms are required to pay dividends to their shareholders. If a company chooses to pay dividends, it can be distributed monthly, quarterly, or annually. Dividends received by shareholders are subject to shareholder income and may be subject to income tax (see dividend tax). There is considerable variation in the jurisdiction of this income tax treatment. The board of directors can pay dividends with different time frames and different payment rates. Dividends can be paid on a fixed frequency, such as monthly, quarterly, or annually. Desirable and common stocks, as well as different classes of stocks usually earn different types of dividends or nothing at all. Preferred stocks usually have higher dividend claims than ordinary stocks. There is no tax deduction for the dividends paid by the corporation. These programs allow you to reinvest some (or all) of the dividends in the company’s additional shares at a discounted rate.
Dividends can boost stable earnings and boost morale among shareholders. Paying dividends for a joint-stock company is not an expense; rather it is a category of post-tax profits among shareholders. The company usually mails checks to shareholders within a week or so. Stocks are usually bought or sold with dividends up to two business days before the record date and then they turn into ex-dividends. Sometimes it is called a special dividend to distinguish it from a fixed schedule dividend. Cooperative members, on the other hand, distribute dividends according to the activities of their members, so their dividends are often treated as pre-tax expenses.