Dividend

Dividend is the distribution of a company’s earnings/profits to its shareholders depending on the type (preferred stock, common stock) and the number of shares held by them. Dividend can be paid in the form of cash, stocks or other forms. The amount and timing of dividends are decided by the board of directors of the company with the approval of the shareholders. However, it is not obligatory for a company to pay dividends.

Usually, companies which are in their early stage of ventures, do not pay dividends as they prefer to reinvest most of their profits to facilitate higher growth and expansion. On the other hand, companies in their mature stage pay regular dividends to their shareholders.

Dividends are a signal that the company is stable enough to share excess profits and has a good future prospect. Further, there are certain investors who prefer the companies which pay regular dividends. While on the other hand, dividends by a company reduce its retained earnings and limits its growth capacity.