A dividend is a distribution made by a company to its shareholders in the form of cash, the company’s own shares, or other assets in proportion to the number of shares owned. Their declaration (type, amount and date) is the responsibility of the board of directors. The most common type of dividend is a cash dividend.
A cash dividend is a cash distribution of net income after taxes by a company to its shareholders, commonly expressed as a certain amount of money per share for common stock and as a percentage of par value for preferred stock. Cash dividends are paid out of retained earnings and, as with all dividends, paid only on outstanding shares. They are usually paid quarterly on US shares, whereas in other jurisdictions they are distributed annually.
A stock dividend is a dividend in the form of a company’s own shares distributed pro rata to its shareholders in the place of or in addition to a cash dividend. Stock dividends usually involve the distribution of shares of the same class of stock as that held by the shareholders (e.g., common stock to common shareholders), the amount commonly being expressed as a percentage of one share. A stock dividend is usually not taxable until the recipient shareholders sell the shares and only if a capital gain is realized on the sale.
A scrip dividend, which is not uncommon for Dutch and UK companies, is the right of shareholders to receive additional shares instead of cash in the value of the cash dividend that is being distributed. An enhanced scrip dividend is a scrip dividend giving shareholders the option of receiving additional shares worth more than the alternative cash payment.
|Select Companies Paying Scrip Dividends|
|Rolls Royce||United Kingdom|
|Royal Dutch Shell||Netherlands|
A dividend in the form a subsidiary company’s shares or the company’s own products, usually in addition to a cash dividend, is a property dividend. A property dividend is recorded at the market value of the asset distributed.