DEFINITION  Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders.  There are two ways to distribute cash to shareholders: share repurchases or dividends. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

FORMS OF PAYMENT  Cash dividends  Stock dividends  Property dividends  Interim dividends  Liquidating dividends

Cash dividend: The cash dividend is by far the most common of the dividend types used. On the date of declaration, the board of directors resolves to pay a certain dividend amount in cash to those investors holding the company's stock on a specific date. The date of record is the date on which dividends are assigned to the holders of the company's stock. On the date of payment, the company issues dividend payments.board of directors investors Cash Dividend Example On February 1, ABC International's board of directors declares a cash dividend of $0.50 per share on the company's 2,000,000 outstanding shares

Stock dividend: -A stock dividend is the issuance by a company of its common stock to its common shareholders without any consideration. -Companies, not having good cash position, generally pay dividend in the form of shares by capitalizing the profits of current year and of past years. -Basically there is no change in the equity of shareholders. Stock Dividend Example ABC International declares a stock dividend to its shareholders as 1 : 1 Share.

Property dividend: A dividend paid to shareholders in anything other than cash. Common property dividends include shipping the company's product to shareholders and giving out certificates in stocks in other companies held by the company. They are taxed like cash dividends at the fair market value of whatever property is paid out.dividendshareholderscashcertificatesstockscash dividendsfair market value Property Dividend Example For example, a firm may distribute samples of its own product or shares of a subsidiary company to its stockholders. In general, a property dividend is taxable at its fair market value.

Scrip dividend. -An unusual type of dividend involving the distribution of promissory notes that call for some type of payment at a future date. Scrip dividends generally signal that a firm is short of cash. -A company may not have sufficient funds to issue dividends in the near future, so instead it issues a scrip dividend, which is essentially a promissory note (which may or may not include interest) to pay shareholders at a later date. This dividend creates a note payable. interest Scrip Dividend Example ABC International declares a $250,000 scrip dividend to its shareholders that has a 10 percent interest rate.

Liquidating dividend. When the board of directors wishes to return the capital originally contributed by shareholders as a dividend, it is called a liquidating dividend, and may be a precursor to shutting down the business. Liquidating dividend example: ABC International's board of directors declares a liquidating dividend of $1,600,000.

STEPS IN THE PROCESS OF DISTRIBUTION OF DIVIDEND  (1) The company may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends.  (2) A dividend must not be declared unless the directors have made a recommendation as to its amount. Such a dividend must not exceed the amount recommended by the directors.  (3) No dividend may be declared or paid unless it is in accordance with shareholders' respective rights.

 (4) Unless the shareholders' resolution to declare or directors' decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each shareholder's holding of shares on the date of the resolution or decision to declare or pay it.  (5) If the company's share capital is divided into different classes, no interim dividend may be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears.

 (6) The directors may pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment.  (7) If the directors act in good faith, they do not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on shares with deferred or non-preferred rights.

DIVIDEND PAYMENT PROCEDURES  Declaration date  Ex-dividend date  Holder-of-record date  Payment date

DIVIDEND PAYMENT FACTORS  Profitability  Capital Needs  Investor Expectations  Dividend Coverage  Enhancing Shareholder Value

CONCLUSION  Dividends are usually paid in the form of cash, store credits (common among retail consumers' cooperatives) and shares in the company (either newly created shares or existing shares bought in the market.) Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder