- Date : 01/12/2022
- Read: 3 mins
Types of dividend
When you own shares in a company, you often receive dividends on your investment. Companies distribute a part of their profits in the form of dividends to reward shareholders. Dividend payment also promotes the company’s market value and influences its market perception.
There are different types of dividends that companies might pay. Let’s understand what these types are.
1. Cash dividend
The cash dividend is the most popular and common dividend that companies pay. The dividend is paid in the form of cash against the number of shares that you own.
For instance, if the company declares a dividend of Rs.10 per share and you own 1000 shares, you will get Rs.10,000 in dividend income.
Cash dividends can be of two types – interim dividends and final dividends. An interim dividend is one that is paid during a financial year. On the other hand, the final dividend is the one that is paid after the end of a financial year when the annual accounts of the company are prepared.
2. Stock dividend
A stock dividend is when the company issues additional shares to its shareholders free of cost. For instance, if the company issues one share for every 10 shares and you hold 200 shares, you will get 20 shares in the form of a dividend.
3. Property dividend
A property dividend is when the company gives an asset or property to shareholders as a dividend. For instance, a company distributes cars among its shareholders free of cost. The car will be a property dividend.
4. Scrip dividend
In some cases, companies might not have sufficient funds, shares or property at their disposal to pay dividends to their shareholders. In such cases, companies might issue promissory notes in the form of scrip dividends. The promissory note will be an undertaking on the part of the company to pay dividends at a later date when the company will have sufficient funds.
5. Liquidating dividend
This type of dividend is paid when the company prepares to wind up its business. In such cases, the company repays the shareholders for their invested capital. The repayment is made in the form of liquidating dividends.
So, if you receive dividend payments, know which type of dividend you are getting. You must also know Know how dividend income is taxed