What is a Dividend
Corporate shareholders and stockholders are paid a portion of company’s profit. This share of profit is termed as dividend. A corporation is often funded through share holders and stockholders who share a right to the profits of the company. When a company makes profits or has enough surplus; it can either distribute it among the shareholders or use it for re-investment purpose. This process of reinvestment of the earnings or surplus is called retained earnings.
The cash can be distributed to shareholders in two ways; dividends or share repurchases. Most corporations are seen to retain a part of the profits and distribute the rest among the shareholders according to the specified percentage of dividend. For every share that the shareholders possess, a fixed dividend is paid put to them. The amount of dividend received by a share holder is directly proportional to the number of share held by them.
A joint Stock company which pays dividends does not find them to be an expense and rather assume them to be division of profits after paying the tax. In case of retained earnings, the equity section of the shareholder shows them in the balance sheet of the company. The pattern of paying out dividends varies in case of public sector companies and joint stock companies.
The dividends paid out by public companies are usually as per a fixed schedule unlike the Joint Stock Company. Sometimes the dividend may also be paid out irrespective of the fixed schedule and then they are called special dividends to bring in a clear demarcation from fixed dividends. Dividend has a broad spectrum and may show great fluctuations in their pattern of distribution.
In case of corporate sectors affixed percentage is given out to per share and this percentage is finalized at the time of distribution of shares in the market. The shares are sold either directly through the company or sold out through brokers on the market. The price at which a company sells shares is called it nominal value while the price at which they are sold in the market through brokers is called its market value.
It is seen that the nominal value of a share is always less than the market value since there is no commission of mediators or brokers added to the shares. However, the percentage of dividend offered by the company is always paid out on the nominal value of share and the amount of dividend received would depend on the number of shares you hold. The percentage is fixed and the dividend calculated on each share is always the same.
If the dividend on one share comes up to say $5, then if you hold 50 shares you would be entitled to a total dividend of $250. Hence, the total dividend received depends on the number of shares that you hold. You can multiply the dividend received on one share with the number of shares to estimate the total dividends you would be entitled to.