What is Dividends

Dividends Are Distributions of Earnings
In Form of Cash Payments to Shareholders.
The amount of dividend a company pays is another important criterion investors need to consider when investing in stock as it is one of the benefits a shareholder obtains from stock investing.

A company's dividend policy i.e. the decision regarding the division of firm earnings between distribution as dividend or reinvestment in the company, is influenced by a number of factors.

These include investors expectations, investors preferences for cash dividend, the availability of profitable investment opportunities and the liquidity position of the company.

Investors attach significant role to a company's dividend policy. A company's dividend payment record is viewed as a source of information concerning the financially well being of the company.

Most companies have viable investment opportunities which can generate profitable returns. But if the firm pays cash dividend with earnings that can be used to finance worthwhile investments, then it will have to issue new shares to raise the required capital.

Incurrence of flotation costs in raising a new issue of shares favours the retention of earnings in the presence of favourable investment alternatives.
The net income and cash flow of a company can differ greatly. A firm may show net income for the year of $10 million but have only $1 million in cash at the time when dividend is due to be paid. Since dividend is paid with cash, the company must therefore posses sufficient cash or liquidity before dividend can be paid. Click here for high dividends yield stock investing.

Highly Recommended FREE Sign Up

Search Here for More Information