Dividend is defined as a portion of the earnings of a company within a specified duration of time. It is paid out to the shareholders as determined by the board of directors. They may be in the form of shares of stock, property or cash. Such bonuses may be issued as one-off special payout amounts or as continuous payments as the value of the company continues to increase. There are different types of dividend payments that exist.

Investors need to understand that companies have a number of options as regards the handling of profits apart from allocating it to shareholders. For instance, they may decide to keep it within the company so that it forms part of the operating capital. The latter is what is termed retained earnings. Another option is for the company to use the profit to buy back its own shares (share buy-back) in the open market. Recommendations of the bonus have to be approved by the shareholders.

There are two main ways of quoting the allocation for each shareholder (or dividend rate). The first option is to quote it in dollars (or any other unit of currency) for each share held (also referred to as dividends per share, DPS). The second option is to quote the allocation as a percentage of prevailing market price. In this instance, it will be known as the yield.

The commonest type of bonus is the cash payment. As the name suggest, the bonus in this case is paid out in monetary terms. The payment is determined and declared in the date of declaration. It is assigned to the shareholders on what is referred to as the date of record. It is received on the date of payment. The amount of money that each shareholder receives corresponds to the number of shares that they hold.

Stock dividends are another common type of bonuses that are issued to shareholders. They are the preferred mode of payout when a company is short of operating capital but still wants to keep its investors happy. Each shareholder receives additional shares that are proportional to their preexisting shareholding. The proportional of shares issued should be less than 25% of outstanding shares for this to be true. If the value is more the transaction will be referred to as a stock split.

Property dividend is issued in terms of assets that are held by the company. Such assets may include equipment, inventory, vehicles, real estate properties and so on. When the bonus is paid out to the shareholders the corporation restates the fair market value of the distributed asset. In most cases this value differs from the existing book value. Consequently, the property will carry a net gain or loss.

When a company does not have enough funds to give as bonuses in the near future, the shareholders receive what is referred to as a script payment. This works more or less as a promissory note meaning that they will be paid at a later date as soon as the funds for the same are available. Another way of looking at scrip dividend is that it is equivalent to new shares created by the company.

In some cases the directors may decide to return the original capital to the shareholders. This payment is referred to as the liquidating dividend. Such may be necessary when there are plans to shut down the business.

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