Dividends are payments of income, usually to shareholders of a company. Historically, dividends were paid as cash. Nowadays, dividends are often paid partly in stock and partly by checks. They can be used either to purchase new shares or as cash payments.
Dividends have been around since the 18th century when investors in the British East India Company started to receive regular payments from their investment after paying out dividends from profits made from trading with India.
1. Property Dividend
Property Dividends are paid in the form of interest or dividends on shares issued by real estate companies. Property dividends benefit investors because they know the prize is guaranteed and can be used to secure an income (albeit small) during periods when interest rates are low.
The rent occurs when a property owner pays monthly rent bills on their flat or house. This kind of dividend is usually paid out to the tenants of the property. Sometimes, however, rents can be collected on behalf of tenants as part of the rental agencies’ administrative processes. The rent is usually a regular payment and does not fluctuate much.
A landlord will usually call for financial payments from the tenant so that repairs or maintenance to the property can be made or supplies can be bought. Payments made by a landlord are called rent which is different from property dividends.
2. Stock Dividend
A stock dividend is when a company distributes new shares among its financial stakeholders, which are not a part of the initial distribution. New shares are distributed at no cost to the stakeholders and can be sold or bought on the market like any other share. In 2004, Ford Motor Company distributed $10 billion in stock dividends to its shareholders due to its record level of profits. Stock dividends are sometimes distributed as compensation or to increase shareholder interest in a company. When stock dividends are paid out, the share price tends to fall immediately because the company is decreasing its total outstanding shares. Companies that have become publicly traded have been known to pay out stock dividends at least once in their first five years of existence (of course, this only applies to increasing companies).
3. Cash Dividends
Cash dividends are distributed in cash and do not need to equal a percentage of a share’s selling price. The amount paid out is usually included as part of the company’s financial statements and other distributions such as stock dividends. However, a portion of the tips may also be paid in stock rather than cash, depending on the preferences of the investors. As opposed to stock dividends, cash dividends permanently reduce a company’s total outstanding shares when paid out.
4. Subscription Dividends
Subscription dividends are only available to subscribers to a mutual fund. The amount paid is based on the amount subscribed by a certain number of investors. The number of shares issued to an investor depends on how many subscriptions are received for a specific fund. Subscriber dividends are available only for stocks in the American stock market and through direct subscription to a mutual fund. Subscription dividends come in two formats Graded, where the investor is entitled to additional payments or Lump Sum. Graded format prices the prize at the highest price, followed by a second high price and ranging downwards until a fixed price is reached. The lump Sum format gives all the investors a fixed amount of capital.
5. Pay per Share Dividends
This type of dividend allows investors to receive dividends according to the number of shares they own in a company. This payment type only applies to companies that have already paid out their annual dividends. Pay per Share dividends are also known as Pay on the Shares. These types of distribution are made after a company has already determined its yearly profits and paid all its obligations. The minimum amount that can be distributed as Pay per Share is $0.10 though smaller amounts are possible depending on whether the company has any capital left over. In most cases, pay per Share dividends are offered by listed companies and not-for-profit organizations such as banks.
6. Negative Dividends
Negative dividends occur when a company temporarily decreases the number of its total outstanding shares. These dividends are only made during the year when a specific share amount is divested from the company’s outstanding shares or stock. These dividends can also be referred to as reverse shares or share buybacks. Advisers usually recommend that investors avoid harmful tips because they can cause a company’s share price to decline and may not be accounted for by investors. Reverse shares are often used to increase shareholder interest in the stock by reducing the number of outstanding shares in the market, thereby increasing each Share’s value.