Dividends

Dividends

Fact Scenario

Lawrence owns shares of stock in Dyorama, Inc. Lawrence owns 100 shares of common stock and, as a common stockholder, is entitled to participate in dividend distributions. Dyorama, Inc. sent all of its stockholders, including Lawrence, a notice that it was declaring a dividend on its shares of common stock in the amount of $ 1.34 per share.

What Is A Dividend?

A dividend is a mechanism by which a corporation returns a portion of its earnings to its stockholders. Many corporations pay dividends to their stockholders on a regular basis; however, not all corporations do. A corporation may pay a dividend in cash or in stock.

What Is The Process?

In every instance, a dividend must be approved or declared by the board of directors of a corporation. There are three important dates to keep in mind:

Declaration date – The declaration date is the date on which the board of directors announces its intention to declare a dividend. On this date, the board of directors sets the amount of the dividend, the dividend payment date, and the ex-dividend date.

Date of record (ex-dividend date) – Only the owners of shares of stock, as of the date of record, are entitled to participate in the dividend distribution. More specifically, if an investor sells his or her shares before the date of record, he or she would not be entitled to participate in the dividend distribution. The investor who purchased the shares of stock would be entitled to the dividend.

Dividend payment date – The payment date is the date on which the dividend is issued to stockholders.

Why Do Some Companies Pay Dividends While Others Do Not?

Generally speaking, corporations pay dividends in order to please their stockholders. Investors, especially those approaching retirement years, look at dividends as a form of income. Furthermore, dividends make a stock attractive even when the likelihood of further growth is not strong.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

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