Dividend is a term that is often heard in the investment world. For investors, understanding the concept of dividends is very important because it can help them choose the right investment.
Dividends can be interpreted as the distribution of company profits to shareholders. So, let’s talk in detail about what dividends are, why it’s important to understand them, and the factors that influence the size of dividends.
So, if you are interested in learning more about dividends, let’s start the discussion from the definition, types, to how to calculate dividend distribution, come on !
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What Is a Dividend?
Dividends are distribution of company profits to shareholders in return for their share ownership. So, when a company generates net profit, they may decide to distribute some or all of that profit to the shareholders.
Dividends are usually expressed as a percentage of the par value of the shares, such as 5% of the par value of the shares. For investors, dividends can be a steady source of passive income, especially for those looking for a safe, long-term investment.
There are several types of dividends that companies can distribute to shareholders. One is the cash dividend, which is paid out in cash. Another type of dividend is a stock dividend, which is paid out in the form of additional shares.
In general, cash dividends are preferred by investors because they can immediately receive cash in return for their shareholdings.
There are several factors that affect the amount of dividends distributed by a company to shareholders. The company’s financial condition is the main factor affecting the amount of dividends distributed.
If companies generate large profits, it is likely that they will pay larger dividends as well. In addition, the company’s growth is also an important factor in determining the amount of dividends.
Companies that are growing rapidly and have the potential to continue to grow will prefer to invest their profits back into the company rather than paying large dividends. Finally, the company’s policy in distributing dividends is also a factor that influences the amount of dividends paid.
In the investment world, dividends are often compared to capital gains. Dividends are passive income received from share ownership, while capital gains are profits derived from an increase in share prices from the time of purchase to sale.
Even though both have their advantages and risks, for investors looking for a stable long-term investment, dividends are often the preferred choice.
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Types of Dividends
Types of dividends can be distinguished based on the method of payment or the method of sharing company profits. The following are several types of dividends that are commonly distributed by companies to shareholders.
1. Cash Dividends
A cash dividend is a type of dividend that is paid out in cash to shareholders. The amount of cash dividends is determined by the company and is usually expressed as a percentage of the nominal value of the shares. Cash dividends are usually distributed periodically, for example quarterly or annually.
2. Stock Dividends
Stock dividend is a type of dividend paid in the form of additional shares to shareholders. In this case, the company does not pay dividends in cash, but provides additional shares in return for ownership of the shares held.
Stock dividends are usually given as an additional option for shareholders, so they can choose whether to receive the dividend in cash or additional shares.
3. Special Dividends
A special dividend is a type of dividend paid by a company on an irregular basis, which is usually due to a special event such as a sale of an asset or a significant cost savings. The size of the special dividend is determined by the company and is usually expressed as a percentage of the nominal value of the shares.
4. Temporary Cash Dividend
Temporary cash dividends are a type of dividend paid by companies for a limited period of time. Usually, companies make large profits in the short term, and they decide to share some of those profits with shareholders in the form of temporary cash dividends.
5. Opinion Dividend
An opinion dividend is a type of dividend paid by a company in the form of an option to purchase shares at a lower price. In this case, the company gives the option to the shareholders to purchase additional shares at a lower price than the current market price.
The options usually have a specified term, and the shareholder can decide whether or not to exercise the option.
In choosing investments, an understanding of the types of dividends can help you choose the right stock according to your needs and investment goals.
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How to Calculate Dividends You Need to Know
The amount of dividends distributed by companies can vary depending on company policies, financial conditions, and company growth.
For investors, it is important to understand how companies calculate dividend distribution so that they can predict the amount of dividends they will receive from their investment. Here’s how to calculate dividend distribution.
1. Determine the Amount of Company Profits
First, to calculate the distribution of dividends, it is necessary to know the amount of the company’s profit in advance. Company profit is calculated as the difference between revenue and costs incurred by the company in a certain period.
In calculating profits, it is also necessary to pay attention to any expenses or losses that may occur during that period.
2. Determine the Amount of Dividends to be Distributed
After knowing the amount of company profits, the next step is to determine the amount of dividends to be distributed. The company’s policy in distributing dividends may vary depending on the company’s financial condition and growth.
Some companies may choose to pay out all profits in the form of dividends, while other companies may only pay out a small portion of profits in the form of dividends.
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3. Calculate the Dividend Percentage
After determining the amount of dividends to be distributed, then calculate the dividend percentage. The dividend percentage is calculated by dividing the amount of the dividend by the total nominal value of the shares issued by the company.
For example, if a company owns 100,000 shares with a nominal value of IDR 1,000 per share and decides to pay a dividend of IDR 500 per share, then the dividend percentage is 50% (IDR 500 / IDR 1,000).
4. Calculate the Amount of Dividends Received
Finally, calculate the amount of dividends that will be received by shareholders. The amount of dividends to be received by shareholders is calculated by multiplying the dividend percentage by the number of shares owned by the shareholders.
For example, if someone owns 1,000 shares with a nominal value of IDR 1,000 per share and a dividend percentage of 50%, then the amount of dividends to be received is IDR 500,000 (50% x 1,000 x IDR 1,000).
An understanding of how to calculate dividend distribution can help you predict the amount of dividends you will receive from your investment. However, keep in mind that the calculation of dividend distribution is only an estimate and may change depending on company policies and financial conditions that occur in the future.
Therefore, it is important to always follow the development of the company and understand the financial conditions that will occur in the future before making investment decisions.
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Factors Affecting Dividend Distribution
Dividend distribution is influenced by various factors, including the company’s financial condition, dividend policy, company growth, and external factors such as market conditions and competition. The following are the factors that influence the distribution of dividends.
1. Company Financial Condition
The company’s financial condition is the main factor affecting dividend distribution. If a company generates a large net profit, it is likely that they will pay a larger dividend as well.
However, if companies experience losses or have large debts, they may not pay dividends or pay smaller dividends than usual.
2. Dividend Policy
The Dividend policy is a rule or policy made by a company to distribute profits to shareholders. Dividend policies may vary between companies, depending on the company’s goals and financial condition.
Some companies may have a fixed policy of paying the same dividend every year, while other companies may choose to pay larger dividends in certain years or at certain times.
3. Company Growth
The growth of the company also affects the distribution of dividends. Companies that are growing rapidly and have the potential to continue to grow will prefer to invest their profits back into the company rather than paying large dividends.
This is because the company can use these profits to expand or invest in new businesses that can increase the company’s growth in the future.
4. External Factors
External factors such as the market situation and competition can also affect the distribution of dividends. If the market is sluggish or competition in the industry is getting tougher, companies may choose to withhold dividends or pay smaller dividends than usual.
This is done so that the company can face difficult situations and maintain the company’s financial stability.
5. Types of Shares
The type of shares owned by shareholders can also affect dividend distribution. Preferred stock usually has greater and more stable dividend rights than common stock.
Therefore, if the company has more preferred shares than common shares, it is likely that the dividends distributed will be larger.
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An understanding of these factors can help you choose the right stocks and predict the amount of dividends you will receive from the investment you make. Therefore, before making an investment decision, it is important to carry out careful research and analysis regarding the company to be invested in.
In addition, it is important to remember that dividend distribution is not the only factor to consider in making investment decisions. Investors also need to consider other factors such as company growth, management policies, and market conditions.
By considering all of these factors, hopefully you can make smarter and more profitable investment decisions.
Thus the article regarding information about the definition, types, and how to calculate dividends. Hopefully the above article is useful, yes !