Many investors dream to live off dividends. Dividends are a sum of money, a company regularly pays to its shareholders. If you have a similar dream with them, you need to understand the definition and types of dividends below.
Dividend Process
The company’s board of directors decides and manages the dividends, then the shareholders approve it later through their voting rights.
Besides, the board of directors also declares the dividends each time they are paid. Here are three important dates to remember regarding dividends.
Declaration date
The declaration date is the day the Board of Directors announces its intention to pay a dividend.
Date of record
People usually call it “ex-dividend” date. It is the day upon which the stockholders of record get entitled to the upcoming dividend payment.
Payment date
This is the date when the shareholders of the company get their dividend payment.
Types of Dividends
We generally have cash dividends, property dividends, and special one-time dividend.
Cash Dividends
Regular cash dividends are those paid out of a company’s profits to the owners of the business (i.e., the shareholders). A company that has preferred stock issued must make the dividend payment on those shares before the common stockholders get a single penny.
Property Dividends
With property dividend, a company distributes property to shareholders instead of cash or stock.
The example of property dividends is railroad cars, cocoa beans, pencils, gold, silver, salad dressing or any other item with tangible value. Property dividends record at market value on the declaration date.
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Special One-Time Dividends
Sometime a company may also pay a special one-time dividend. Special one-time dividends can take the form of cash, stock, or property dividends. The distribution of this type of dividends is rare.
But when a company experiences a major litigation win, the sale of a business, or liquidation of an investment, they give this type of dividend.