• Dividend refers to the business concerns net profits
distributed among the shareholders. It may also be termed as
the part of the profit of a business concern, which is
distributed among its shareholders.
• Dividend is defined as a distribution to shareholders out of
profits or reserves available for this purpose.
Types of dividend
• Cash dividend
• Stock dividend
• Bond dividend
• Property dividend
• If the dividend is paid in the form of cash to the shareholders,
it is called cash dividend. It is paid periodically out of the
business concerns EAIT (Earnings after interest and tax).
• Cash dividends are common and popular types followed by
majority of the business concerns.
• Many companies pay dividends in cash. Sometimes cash
dividend may be supplemented by a bonus issue (stock
• Company should have enough cash when cash dividend are
declared else arrangement should be made to borrow funds.
• If company follows stable dividend policy , it should prepare a
cash budget for coming period , it is relatively difficult to make
cash planning in anticipation of dividend needed.
• Bond dividend is also known as script dividend. If the company
does not have sufficient funds to pay cash dividend, the
company promises to pay the shareholder at a future specific
date with the help of issue of bond or notes.
• Stock dividend is paid in the form of the company stock due to
raising of more finance.
• Under this type, cash is retained by the business concern.
Represented as distribution of shares in addition to cash
dividend to existing shareholders
• The shares are distributed proportionately . Thus, a
shareholder retains his proportionate ownership of the
• Tax benefit
• Indication of future
• Future dividends may
• Psychological value
• Conservation of cash
• Only means to pay
financial difficulty and
• More attractive share
• Shareholders wealth remains unaffected.
• Costly to administer.
• Problem of adjusting EPS and P/E ratio
• Property dividends are paid in the form of some assets other
than cash. It will distributed under the exceptional
circumstance. This type of dividend is not published in India.
• A company may issue a non-monetary dividend to investors,
rather than making a cash or stock payment.
• Record this distribution at the fair market value of the assets
• Since the fair market value is likely to vary somewhat from
the book value of the assets, the company will likely record
the variance as a gain or loss.