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Management
Cash dividend
Stock dividend
Bond dividend
Property dividend
1. Cash Dividend: If the dividend is paid in the form of cash to the shareholders,
it is called cash dividend. It is paid periodically out the business concerns EAIT
(Earnings after interest and tax). Cash dividends are common and popular types
followed by majority of the business concerns.
2. Stock Dividend: Stock dividend is paid in the form of the company stock due
to raising of more finance. Under this type, cash is retained by the business
concern. Stock dividend may be bonus issue. This issue is given only to the
existing shareholders of the business concern.
3. Bond Dividend: Bond dividend is also known as script dividend. If the company
does not have sufficient funds to pay cash dividend, the company promises to
pay the shareholder at a future specific date with the help of issue of bond or
notes.
4. Property Dividend: Property dividends are paid in the form of some assets
other than cash. It will distributed under the exceptional circumstance. This type
of dividend is not published in India.
A discussion on internal financing ultimately turns to practical considerations which determine the
dividend policy of a company. The formulation of dividend policy depends upon answers to the
questions:
3. Irregular Dividend Policy: When the companies are facing constraints of earnings
and unsuccessful business operation, they may follow irregular dividend policy. It is
one of the temporary arrangements to meet the financial problems. These types are
having adequate profit. For others no dividend is distributed.
4. No Dividend Policy: Sometimes the company may follow no dividend policy
because of its unfavourable working capital position of the amount required for future
growth of the concerns.
STOCK DIVIDEND 0R BONUS SHARES
The term bonus means an extra dividend paid to shareholders in a joint stock
company from surplus profits. A bonus share is a free share of stock given to current
shareholders in a company, based upon the number of shares that the shareholder
already owns. While the issue of bonus shares increases the total number of shares
issued and owned, it does not change the value of the company.
Advantages/Objectives of issuing Bonus Shares:
(a) To company
(i) Conservation of Cash. The issue shares allows the company to declare a dividend
without using up the cash that may be used to finance the profitable investment
opportunities within the company and thus company can maintain its liquidity
position.
(ii) Under Financial Difficulty and Contractual Restrictions. When a company faces
stringent cash difficulty and is not in a position to distribute dividend in cash, or where
certain restrictions to pay dividend in cash are put under loan agreement, the only
way to satisfy the shareholders or to maintain the confidence of the shareholders is
the issue of bonus shares.
(iii) Higher Future Profits of the Company. The payment of stock dividend is normally
interpreted by shareholders as an indication of higher profitability. Stock dividend is
generally declared by the directors of the company only when they expect rise in
earnings to offset the additional outstanding shares. Thus, it may convey some
information which may have a favourable impact on the value of shares.
(iv) Increased Future Dividend. In a company as been following a policy of paying a
fixed rate of dividend and continues if after issuing bonus shares, the shareholders will
get larger amount of cash dividend in future. Moreover, it may have a favourable
affect on the value of shares.
(v) Psychological Value. The declaration of stock dividend may have a favourable
psychological effect an shareholders. It gives an impression of prosperity of the
company. It helps to increase the capital value of shares in the market.
Disadvantages of Issuing Bonus Shares (company)
1. Issue of bonus shares declines the rate of dividend in the future
2. The companies encourage speculative dealings in shares by issuing bonus
shares
3. Issue of bonus shares is a very lengthy process. It requires the approval of SEBI
which might delay in the issue of shares
Mohammed Umair: Dept of
Commerce, KJC