Archive for January, 2011

Effects of Declared Cash dividends on Your Cash

Thursday, January 20th, 2011

Stockholders are people who invest in the prospective future of a company. When a company makes a good profit, it returns (on a regular basis), a part of it to the stockholders. This is called as a dividend. There are two types of dividends – cash & stock. Every company follows the two date system – one when it announces (or declares) the dividend & the one when it actually pays it.

A company decides upon the percentage of the profit that it will share with it’s stockholders. Also, many a times, the payment is routed primarily to the preferred stockholders & secondarily to the common stockholders. It also has to do a considerable balance sheet work to ensure there are no errors. Also, there is no potential loss to the company’s profitability when it shares the profits with it’s shareholders. The payout ratio is roughly the annual dividend payments divided by the amount of annual net income generated.