√ The definition of dividends, types, policies, theories and procedures are complete
Complete Definition of Dividend, Types, Policies, Theories and Procedures – In this discussion, we will explain about dividends. An explanation that includes the meaning of dividends, types or kinds of dividends, dividend policies, dividend policy theory, dividend payment procedures which will be discussed in a complete and easy manner understood.
Complete Definition of Dividend, Types, Policies, Theories and Procedures
For more details, please see the review below carefully.
Definition of Dividend
According to Wikipedia, Dividend is the distribution of profits to shareholders based on the number of shares owned. With this distribution, retained earnings and cash will be reduced for the company, but the distribution of profits to the owners is the main goal of a business.
Types/Types of Dividends
There are five types of dividends proposed by Brigham and Houtston (2004: 95), namely:
Cash Dividends
Cash dividends or cash dividends are dividends that are paid in cash. Generally, this type of cash dividend is more liked by shareholders and is used more by the company when compared to other types of dividends.
Stock Dividends
Stock Dividend or stock dividend is a type of dividend whose payment is in the form of shares, not in cash. Payment of stock dividends must suggest that there is a profit or surplus provided, with the payment of these shares, the outstanding shares increase, however This type of payment will not change the company's liquidity position because what is paid by the company is not part of the company's cash flow.
Property Dividends
Property dividends or goods dividends are dividends whose payment is in the form of goods or assets other than cash. In goods dividends that can be divided are in the form of goods or homogeneous parts and also handing it over to the shareholders will not interfere with the continuation of the company or continuity.
Dividend script
Scrip Dividends or debt dividends are dividends whose payment is in the form of debt pledges. A company will pay a certain amount and at a certain time, which is adjusted to what is stated in the script. This type of payment will cause the company to have short-term debt to scrip holders.
Liquidating Dividends
Luquidating dividend or liquidity dividend is a type of dividend whose distribution is based on reducing the company's capital, not based on the profits the company gets.
In site Wikipedia, dividends are divided into four types, namely:
- Cash dividend: is a common way to share profits. The payment is in cash and there is tax in the year it was issued.
- Stock Dividend: Payment in the form of additional shares, usually calculated based on the proportion of the number of shares owned.
- Property Dividends: dividend payments in the form of assets, this type is rarely used.
- Interim Dividend: payment of dividends before the company's financial year ends.
Dividend Policy
A management has two policies that apply to the company's net income after tax, namely:
- Distributed to shareholders in the form of dividends
- Reinvested for the company as retained earnings
Therefore, the management section must make a policy (dividend policy) regarding the amount of EAT that will be distributed as dividends. If the company distributes dividends, it will reduce the source of funds (cash) from the company's profits. If the company does not share profits (profits) as dividends, it will be able to enlarge internal funding sources which increase the company's ability to develop the company.
Dividend Policy Theory
There are several theories of dividend policy expressed by several experts, which include:
Dividend Theory Is Irrelevant
According to Modiglani and Miller: The value of a company is not calculated from the size of the dividend payout ratio, but is determined by the net profit before tax and the company's risk class. So according to Modiglani and Miller, dividends are irrelevant to calculate because they will not increase shareholder welfare. Because the increase in the company will be influenced by the company's ability to benefit from the company's assets.
The Bird In The Hand Theory
According to Lintner and Gordon: A company's own capital fund will increase if the dividend payout is low because investors prefer to receive dividends rather than capital gains.
Tax Difference Theory
According to Litzenberger and Ramaswamy: With the tax on dividends and capital gains, investors prefer capital gains because they can delay paying taxes. So more investors require a higher rate of return on stocks that pay high dividends.
Theory of Signaling Hypothesis
There is empirical evidence that if there is an increase in dividends it is often accompanied by an increase in share prices. Conversely, a decrease in dividends will usually cause the stock price to fall. This symptom indicates that investors prefer dividends rather than capital gains.
Clientele Effect Theory
This theory argues that shareholder groups (clientele) will have different views on the company's dividend policy. Groups that need current income prefer a high dividend payout ratio.
Dividend Financing Procedure
Announcement of issuers and dividends to be paid to shareholders is called a dividend announcement. Details of the dates that must be considered in paying dividends according to Sinuraya (1999) are as follows:
- Announcement Date
The announcement date or declaration date is the date that the issuer formally announces regarding the form and amount as well as the dividend payment schedule to be made. This announcement is generally for the distribution of regular dividends. The contents of the announcement inform important matters such as the date of recording, the date of payment, and the amount of cash dividends per share. - Recording Date
The date of record or date of record is the date on which the company records the names of the shareholders. Registered shareholders will be given rights while unregistered shareholders will not be given the right to receive dividends. - Cum-Dividend date
The cum-dividend date is the date on which stock trading is no longer attached to the right to receive dividends. So if an investor buys stock on or after this date, then the investor will not get his name to get the dividend. - Payment date
The payment date or payment date is the date on which the company pays dividends to shareholders who already have the right to dividends. So on that date, investors have been able to take dividends in accordance with the form of dividends that have been announced by the issuer, whether cash dividends or stock dividends.
Thus has been explained about Complete Definition of Dividend, Types, Policies, Theories and Procedures. Hopefully it can add to your insight and knowledge. Thank you for visiting, don't forget to read our other articles.
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