What Are Dividends?

WHATDIVIDENDS? When a corporation earns a surplus, the money can be put to two uses: it can be re-invested in the business as retained earnings, or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend, Dividend: payment made by a corporation to its shareholders Receiving a dividend is good for investors, because they get a guaranteed return on their investment, in addition to any potential stock appreciation. RETAINED EARNINGS COMPANY X DIVIDEND Retained Earnings: the portion of net income which is retained by the corporation, rather than distributed to its owners a PROFIT dividends. PREFERRED Companies that issue preferred stock pay those shareholders first, before common stock shareholders. Preferred stock dividends are fixed, while those of common stock are determined by the company's Board of Directors TYPES OF DIVIDENDS WARRANT CASH STOCK OR SCRIP Regular cash dividends are paid out of a company's profits. PROPERTY Stock dividends are paid in the OTHER Property dividends are paid in the form of assets from the issuing company, most frequently in the form of additional stock shares of Financial assets that have a the issuing corporation or other corporations, such as its subsidiar- form of securities, known market value can also be distributed as dividends. These Special Dividend:a payment made by a company to its shareholders that is separate from the typical recurring dividend cycle. ies. can be warrants, bonds, or shares in a subsidiary. When and how much dividend is paid is determined by the type of company and the Board of Directors. Board of Directors: a body of elected or appointed members who oversee the company. JOINT STOCK Dividends are allocated as a COOPERATIVE Dividends are allocated fixed amount per share. PUBLIC according to a member's activity. These dividends are considered a pre-tax expense. Dividends are decided by the board of directors and follow a fixed schedule. ACTIVE INVESTOR NON-ACTIVE INVESTOR 12 DIVIDEND DATES 12 I DECLARATION DATE The declaration date is the day the Board of 3 EX-DIVIDEND DATE Directors announces its intention to pay a dividend. 2 IN-DIVIDEND DATE This is typically two trading days before the record date. On this day, all shares bought and Dividend Arbitrage: an options trading strategy that involves purchasing put options and an equivalent amount of underlying stock, before the ex-dividend date. The in-dividend date is the last day a stock is considered cum dividend. All existing holders of the stock and anyone that buys the stock today will sold no longer have the rights to the most recently declared dividend, Existing holders of the stock will receive the dividend even if they now sell the stock, Anyone who now buys the stock receive the dividend. will not receive the dividend. 6 PAYMENT DATE 5 DATE OF RECORD 4 BOOK CLOSURE The day dividend checks are mailed or brokerage Shareholders-who properly registered their accounts are credited. ownership on or before the date of the record-are The day on which the company will temporarily close its books for transfers of stock, known as stockholders of record, and will receive the dividend, DIVIDENDS OF THE DJIA Here is the dividend distribution of the 30 DJIA companies. AS OF OCTOBER 2010 DJIA: The Dow Jones Industrial Average, a stock market index composed of 30 large publicly traded U.S. companies. MERCK KRAFT TRAVELERS BOEING VERIZON COCA-COLA CHASE DISNEY ALCOA IBM JOHNSON & JOHNSON BANK OF AMERICA SOURCES: INVESTOPEDIA.COM I US SEC I "WHAT ARE DIVIDENDS" NYLIFE I ZACKS.COM I WSJ.COM mint.com GE PERCENTAI DVIDEND VIELD AT&T PFIZER NOHA3HI INTEL PROCTER & GAMBLE GENERAL ELECTRIC HOME DEPOT MCDONALDS EXXON MOBIL 3M UNITED TECH CATERPILLAR WALMART MICROSOFT DUPONT AMERICAN EXPRESS HEWLETT PACKARD JP MORGAN