Cash Dividend Distribution
Updated on March 14, 2023
The primary aim of a company engaged in business is generating profits. The company uses this profit for business expansion, capital requirements, buying other businesses, research and development etc. As far as listed companies are concerned, they can choose to share these profits or ‘paying back’ to their shareholders. The primary option to do this is by paying them a ‘Dividend’.
What is Cash Dividend Distribution
In simple terms, cash dividend is an amount paid to existing shareholders against their percentage holdings. It is part of the company’s distributable profits or cash pile which is distributed to the shareholders, after reserving some amount for business needs. All the eligible shareholders receive the dividend amount in proportion to the number of shares held and as per the amount of dividend declared by the company.
Features of Cash Dividend
Important factors to note about cash dividend:
a) A company which declares a dividend is considered to be cash rich and it also helps in sending a message that the company is making good money.
b) Shareholders generally like a high dividend paying company because it becomes a source of regular income for them.
c) A company can declare an ‘annual’, ‘regular’, ‘special’ or ‘one time’ dividend from its distributable surplus.
d) Investors and analysts consider a company’s dividend yield as an important metric for assessing the company’s worth.