When a company performs well it earns a profit.
After excluding its expanses company does two things, either investing back the money or sharing the profits with its shareholders. The reinvested money is also called investment from retained earnings and the profit-sharing is known as Dividends. Dividends are over and extra earning for the shareholders apart from the capital gain they earn and are paid majorly in two ways.
Firstly, is the Interim Dividend or interim distribution and the second is Final Dividend or Plum or simply Dividend.
The Dividend decision is taken by the Board members of the specific company after looking at its financial statements and the date on which they do is called the dividend date. The next date in the series is the record date which specifies the date on which all those shareholders who are listed in the books of the company are eligible for dividends. On the dividend payment date, dividends are paid. Interim distribution is announced anytime during the financial year whereas the final dividend is announced at the end of the year.
Paying regular dividends is not an obligation for the company but a choice, if a company wants to do further expansion or growth activity and needs to pay its debts, the profit earned will not be shared with the shareholders. Being announced on a per-share basis, their payment can be in cash but sometimes also in form of an issue of bonus share. Income from dividends is a taxable income.
Every shareholder should invest in blue-chip companies so that they have a steady flow of side income. Dividends can play a major role in increasing shareholder capital.