Cash Dividend

Quick Summary of Cash Dividend

Cash dividend is a payment of cash to you from a company as a sharing of the company’s profits.

A cash dividend is the distribution of a company’s profits to its shareholders.

Although every company is unique, dividends are typically paid quarterly, and the amount is determined by the board of directors. Investors seeking the highest possible profits often reinvest their cash dividend back into the company.

Dividends come in two flavors: cash and stock. Cash is, by far, the more common. Every year, six months, or quarter, depending on the company and, often, the country, a company may (not will) pass along some of its net income to its shareholders. Often, that is in the form of cash.

The shareholder can have several things done with that payment, depending on the company paying it, the size of the payment, and the broker.

1. The cash could be sent directly to the shareholder as a check. This depends on the company paying the dividend and the amount of the dividend. Some companies may have a minimum amount to be paid before they’ll issue a check to an individual shareholder and there may be a processing fee involved. (After all, it costs the company time and money to issue a check and mail it.)
2. The cash could be deposited directly into the same brokerage account containing the shares. This is a common option. The dividend is actually paid to the broker who is the owner of the shares in street name who then splits it up and pays the various customers who have the shares. The cash can then be used for purchases in the future or (depending on the account type) withdrawn.
3. The cash can be used to purchase more shares, often fractional shares (usually down to 1/1000th), of the company paying the dividend. Many brokers offer this service at no charge. Many companies also offer this (called a DRIP), though they require that at least one share be owned directly by the shareholder, not the broker.

Many companies avoid giving a cash dividend because of the dividend tax. A dividend tax is a tax, that shareholders must pay on their cash dividend. Companies who do use a cash dividend choose to use one partly because it suggests the financial stability of their company and makes their stock more attractive to investors. Many companies will consistently increase their cash dividend, even if their earnings are low. They do this because a consistently increasing cash dividend suggests stability and continuous growth.

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