Dividends represent payments that are made by a corporate entity to its shareholders. Corporations may
approach their profits in two alternative ways: they can either reinvest the surplus or spread it among the
shareholders as dividends. Usually, the corporate entities employ a combined approach to their surplus earnings.
Corporations keep a portion of their profits as retained
earnings while distributing the rest in the form of dividends.
The public companies either pay dividends on a fixed schedule basis or announce special dividends at any given
time. The joint stock companies fix the amount of payable
dividends to the number of shares held by the shareholders. The cooperatives distribute dividends in view of the
amount of work completed by their members. In addition, there are several types of dividends: cash dividends, stock dividends, property dividends, and
other dividends. The first kind represents a taxable investment
income that is paid to the shareholders in the form of cheques. The second type of dividends represents stock
shares issued by a corporation in proportion to the shares already owned. The third type, property dividends, is
issued less often in comparison with the other types. This dividend is typically paid in the form of assets, products, or services. The last type of dividends covers
shares of subsidiary companies, assets with identifiable market value, and warrants.
Some corporate entities have established their own dividend re-investment plans. The plans enable the existing
shareholders to purchase a small number of shares at regular time intervals. Typically, the shareholders buy
stock with no added commission and a small price discount. Except for some limited exceptions, they have to
pay taxes on the acquired stock. In many states, a form of double taxation is applied to all distributed
dividends. Firstly, the corporate entity is required to pay its income tax. Then, the shareholders are obliged
to pay income tax on the received dividends.
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