Types of Dividends

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Dividends are the profits that a company pays to its shareholders as decided by the board of directors or shareholders. 

Actually, the dividend can be classified on the basis of two parameters i.e. Mode of Dividend Payment and Timing of Dividend Payment. In general, there are eight types of dividends that are being issued by companies based on the above parameters. Let's dig deeper to know more about the type of dividends.

    Mode of Dividend Payment

    Cash Dividends 

    Cash dividend is a payment made by a company out of its earnings to investors in the form of cash. These are the most common type of dividend distributions issued by the company. 

    Stock Dividends

    Stock dividend is a payment made by a company out of its earnings to investors in the form of stock. Investors are going to receive additional shares of the company’s stock in value equivalent to the declared cash distribution. 
    This type of dividend is mostly issued by the companies that don't cash on hand or it is giving stock dividends from past years.

    Property dividends

    Property dividend is a payment made by a company in terms of any non-monetary payments like investment securities, real estate, physical assets, and others. 
    Remember that companies are not limited to distribute their dividends only in the form of cash or stocks.
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    Liquidating dividends

    Liquidating dividend is a payment made by a company in terms or original capital invested by the shareholders. These types of dividends indicate that the company intends to wrap up it's business or least likely company may have become self-funded from internal activities. Companies generally don't issue these types of dividends frequently.

    Scrip dividends

    Scrip dividend is a payment made by a company in terms of a promissory note payable at a future date. These are generally when the company wants to maintain its dividend track and doesn't have enough funds to pay its dividends.

    Special dividends

    Special dividend is a payment made by the company when the company generates excess profits due to some events like the sale of assets etc. These dividends are not regular and are higher than the regular dividend amount. This type of dividend is paid on common stock.

    Timing of Dividend Payment

    Interim dividends

    Interim dividends are announced by the company’s board at any point of the year before the final closing of the financial year and holding the Annual General Meeting. Under the Act, the corporation may declare interim dividends from income accrued from current or previous fiscal years.

    Final dividends

    Final Dividends are paid by the company after the financial year has been closed, and the Board of Directors accepted an AGM.
    I guess you have a clear cut idea on the type of dividends, lets look at real-life examples to understand much better.

    Example1: 

    VLS Finance Limited announced that the board of directors of the company at a meeting has recommended a dividend @15% i.e. INR 1.50 per equity share on the face value of INR 1O/--per share, for the financial year 2019-2020.

    In general, we assume it to be a cash dividend if not mentioned. Since it is being issued for the complete year, it is the final dividend that the company is paying.

    So, the dividend issued here is Cash dividend and Final dividend.

    Example2: 

    BSE Ltd. For the year ending March 2020 BSE Limited has declared an equity dividend of 850.00% amounting to Rs 17 per share.

    Since it is being issued for the complete year, it is the final dividend that company is paying.

    So, the dividend issued here is the Stock dividend and Final dividend.

    Example3: 

    Tata Consultancy Services (TCS) have declared an interim dividend of Rs 12 per share on Tuesday.

    So, the dividend issued here is the Cash dividend and Interim dividend. 

    Example4: 

    Raghu’s board of directors elects to declare a special issuance of 500 identical, signed prints by Pablo Picasso, which the company has stored in a vault for a number of years. The company originally acquired the prints for Rs 500,000, and they have a fair market value as of the date of dividend declaration of Rs 4,000,000.

    So, the dividend issued here is the Property dividend and nothing mentioned to decide whether its interim final dividend.

    I hope you have understood all these types of dividends, please do comment if you have any doubts.


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