The dividend is a kind of payment that the company makes out of the profits. The more the company has earned over the year, the higher the dividend rate will be. If it is a question of preferred shares, dividends on such shares are paid regardless of the profit of the joint-stock company. In order for a company to make a payment, it forms a special fund, to which it constantly transfers funds, so that, if the profits are not received, it will be possible to pay off the shareholders.
What is Dividend?
Dividends are the profit that shareholders receive on a certain basis from their company, which issued these shares.
Investing in stocks, usually pay attention only to their course, the prospects for its growth and so on.
However, it is important to note that the shares can also bring additional income (though not always) – dividends.
How are dividends formed?
A joint-stock company (enterprise) within a year receives profit from its activities. Then, the shareholders’ meeting decides what percentage of the profits to be used for dividends (split between shareholders).
It is from these funds that dividends are paid. It should be remembered that the company is not obliged to make payments every year. The decision on payment should be made by the general meeting of shareholders.
And the meeting often decides that it is much more profitable to invest in the further development of the company in the hope of future incomes.
The exception is preferred shares, dividends on which are paid in any case (unless the company does not go bankrupt).
Dividend yield of shares (English dividend yield ) – the ratio of the amount of dividends per year per share to the market price of the share, expressed in percent.