What Is A Dividend?
When investing in the stock market one is looking to do one thing: make some money of their investment. A stock dividend is one way investors make a profit off the money invested in a given company’s stock. A stock dividend, often referred to as an earning dividend or profits dividend, is an amount of money paid to an investor by the company in which they have invested. The stock dividend is the portion of earnings of the company when they have completed a time of increased revenue, meaning when they have been profitable. It is important to note that the company retains the right to elect to pay out dividends to its shareholders, or reinvest in their company. Often a company will choose a combination of the two in order to keep their shareholders happy while building their corporation. The amount of the stock dividend is based on two factors:
How much stock the shareholder, or investor, owns in the company. Profit dividends are paid per share. More shares, more earnings dividends to be received.
How much profit the company has earned in a given quarter, or 1/4th of the fiscal year.
How much money the company chooses to put towards the stock dividend payout to its shareholders.
3 Ways Stock Dividends Are Paid To Shareholders
There are three principal ways in which an earning dividend is paid out to the shareholders of a publicly traded company.
1. Cash Earnings Dividend: in this stock dividend payout the shareholder is paid in the form of a check. These types of profit dividends are considered cash and are taxable income by the IRS. An amount is paid for each share in relation to the profit. If you own 100 shares and the earnings dividend is $2.00 per share, you will receive a check for $200.
2. Stock Dividends: in this earnings dividend system an investor will receive not cash or a check, but more shares in the company they are invested in. The amount of stock shares given out in the form of stock dividends is usually given in percentage. In this example if you own 100 shares and the stock dividend payout is 5%, you will be given 5 new shares of the company.
3. Property Earnings Dividends: while less common, in this profits dividend system the shareholder does not receive cash or more stock, but receives items, products, or another type of asset from the company.
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