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Dividend &and types


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dividend and its types

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Dividend &and types

  1. 1. Dividend and Types Prabhin . P
  2. 2. Dividend • 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.
  3. 3. Types of dividend • Cash dividend • Stock dividend • Bond dividend • Property dividend
  4. 4. Cash 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 dividend). • 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.
  5. 5. Bond dividend • 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.
  6. 6. Stock dividend • 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 company.
  7. 7. Advantages • Shareholders • Tax benefit • Indication of future profits • Future dividends may increase • Psychological value • Company • Conservation of cash • Only means to pay dividend under financial difficulty and contractual restrictions • More attractive share price
  8. 8. Limitation • Shareholders wealth remains unaffected. • Costly to administer. • Problem of adjusting EPS and P/E ratio
  9. 9. Property dividend • 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 distributed. • 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.
  10. 10. THANK YOU