Definition of Stock Dividends, Types, and How to Calculate Dividends

Definition of Stock Dividend – Dividend is a term that often appears in the same investment. You could say stock dividends are a condition that many stock investors look forward to.

The term dividend is often used to refer to many things related to profit sharing. Where the term dividend itself refers more to the financial component which can be in the form of assets such as cash, buildings and so on.

Simply put, dividends are a distribution of profits that will be given by the company or issuer to shareholders. The existence of dividends is also an advantage of stock investment that can be obtained apart from capital gains when selling shares.

Dividends in the world of stock investment will be divided into two types, namely cash dividends and stock dividends. Where for cash dividends is a profit that can be obtained in the form of cash at a certain amount of rupiah for each share. Meanwhile, stock dividends are profits for shareholders in the form of shares and not in the form of cash.

Stock dividends are not only about the things above. However, there are many other interesting things related to stock dividends. So, we will dissect deeper regarding stock dividends through the explanation in this article.

Definition of Stock Dividend

As previously explained, dividends are distributions to parties who own shares in a company in accordance with the number of shares they have. Usually, this dividend distribution process will be carried out at the right time. Even so, some conditions sometimes indicate that someone pays special or additional dividends outside of the predetermined distribution time.

Where later the dividend will be distributed to the shareholders, but with a note that if a company has made a sizable profit and the board of directors of a company has also assumed that these conditions are appropriate for the dividend distribution process.

The function of dividends is usually as a form of reciprocity from investor services for investing in a stock product from a company. For this reason, companies that earn profits will provide benefits to their investors or shareholders.

In addition, dividends can also be considered as a shareholder’s right or commonly referred to as common stock to be able to get a share that comes from the profits of a company.

If a company has made a decision to share profits in the form of dividends, then all shareholders of a company will also receive the same amount as theirs.

Even so, there are several reasons why companies cannot always provide all the profits they get to shareholders. Usually, this happens because it is used for the benefit of increasing the company’s capital.

A company can carry out the process of not distributing dividends because of a need that turns out to be prioritized. For example, the results of a company’s profits are prioritized for business expansion or development purposes.

Of course, this can be used as an excuse for companies not to distribute dividends to their shareholders. Even so, companies will usually promise to issue dividends as a form of increasing confidence for their long-term shareholders.

Not only that, because the promise of dividend distribution can have an impact on the interest of new investors who want to get a steady income.

Definition of Dividend According to Experts

After we know the meaning of dividends in general. Next, we will still discuss the meaning of dividends, but from the opinions of several experts. So, for more details, here is the meaning of dividends from experts.

Scott Besley and Eugene F. Brigham

Scott Besley and Eugene F. Brigham argue that dividends are the process of distributing profits from a company to shareholders. Whether it’s the profit that was obtained during the current period or during the previous period.

Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso

Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso have the opinion that dividends are a distribution made by a company to shareholders in a professional manner in accordance with the number of shareholdings. This is done so that shareholders can benefit in accordance with the percentage of investment for the company.

Jamie Pratt

Jamie Pratt explained that dividends are a form of distribution of cash, shares or property to shareholders of a company. Dividends are also a revolution of the corporate board of directors on a quarterly basis with amounts announced on a per share basis.

Nikiphoros K. Laopodis

Nikiforos K. Laopodis believes that dividends are a cash payment activity that will be carried out by each company for its shareholders. Dividends are also a form of representation from shareholders on direct or indirect receipts from investment in the company.

So, those are some experts who have opinions related to the meaning of dividends.

Dividend Type

Dividends will be grouped into several types. There are at least about five types of dividends. So, to understand it better, here is an explanation of the types of dividends.

1. Cash Dividend

The first type is cash dividends. Where cash dividends are a type of dividend that will be distributed to shareholders by a company in the form of cash or cash. The existence of cash dividends is perhaps the most widely used.

Judging from the field conditions, shareholders also really like this type of dividend. This is because shareholders will be able to benefit in cash.

Then, for the period of distribution of cash dividends, it will usually be carried out two to four times per year. That means the distribution of cash dividends will depend on each period. However, it should also be noted that the distribution of cash dividends will be taxed according to existing regulations.

2. Property dividends

Property dividends or goods dividends are dividends that will be distributed in the form of assets. However, compared to cash dividends, this type of property dividend is quite rare. One of the reasons is because the distribution process is not easy.

Companies that distribute dividends in this form are due to the lack of cash. This happens because the cash in the company is being used to invest in other companies’ shares or for other purposes such as inventory.

If cash comes out in large quantities, there will be fears that the selling price of investments and inventories will fall so that losses will be received by the company and shareholders. As a result, the distribution of dividends from the company to its investors or shareholders will be made in the form of assets.

3. Liquidation Dividend

Liquidation dividend is a dividend that will be distributed to shareholders but in the form of a portion of profit and a partial return on capital. Where later companies that provide liquidation dividends are usually companies that have plans to terminate the company such as a joint venture condition or a company in bankruptcy.

When a company experiences bankruptcy but still has remaining assets, the remaining assets will be distributed among the shareholders. This is what is commonly known as a liquidation dividend. Even so, if the company has no remaining capital, then the company will not be able to provide anything to its shareholders.

4. Dividend Pledge Debt

Next, there is a debt pledge dividend or what we usually know as a script dividend. Where the debt pledge dividend is a dividend that will be distributed to shareholders by the company in the form of a debt pledge.

This type of dividend will make a company make a promise to its investors if they will pay dividends within a predetermined time. This type of dividend distribution is usually because the company does not have enough money to process dividend payments to its shareholders. Therefore, promissory notes are made as a form of guarantee for payment of dividends to the shareholders.

5. Stock Dividends

Next, there are stock dividends which are also included in one type of dividend. Understanding stock dividends is the process of distributing dividends that will be made in the form of shares from a company to its investors. Stock dividends are also called stock dividends.

Stock dividends are also almost similar to the preparation of company capital or company recapitulation but do not reduce the amount of ownership from investors. In this type of dividend distribution, investors will not receive dividends in cash, but they will receive an additional number of shares they own.

In stock dividends investors will get an increase in the number of shares. Even so, if the distribution of dividends is carried out due to other factors, then the increase in the number of shares in the existing shares will have an effect on the market price of the shares and have the potential to decrease further. Overall, the share value of investors will not change or increase.

For shareholders who really need money in a fairly fast time, they can really carry out the selling process of the additional shares obtained and the return will adjust to the number of shares before the dividend.

Stock dividends will be able to benefit shareholders if the company also makes the process of paying dividends in cash. This will enable shareholders to receive additional shares in the number of shares they own and at the same time receive dividends in the form of cash.

In distributing stock dividends, the company will usually have a goal to be able to save more on the company’s cash outlay so that it can be used for bigger and more profitable investment opportunities.



Dividend Payment Procedure

As explained, dividends will be given to shareholders or investors of a company that will benefit in the amount of the investment made by the investors.

The process of paying dividends cannot be done just like that. This is because there are several special procedures carried out in the process of paying dividends. Now some of the dividend payment procedures are as follows.

1. Announcement Date

The date of announcement of dividend payment is the date of the official announcement by the issuer or a public company regarding the form and amount of distribution as well as the schedule for dividend payments to be made. The dividend payment date is also known as the declaration date.

This announcement is usually also made for the regular dividend distribution process. The date of the announcement will later convey several important things. Starting from the date of recording, the date of payment to the amount of cash dividends per sheet.

2. Date of Recording

The date of record or commonly referred to as the date of record is when the company carries out the process of recording who are the shareholders in the company. Later, shareholders who are registered in the register of shareholders of a company will have the right to receive dividends.

In this case, shareholders who are not listed or have already carried out the process of selling shares before the date of recording will not be entitled to receive dividend distribution.

3. Cum Dividend Date

The cum dividend date is the time or date of the end of the stock trading process for shareholders who wish to receive dividends in the form of cash dividends or stock dividends from a company.

4. Ex Dividend Date

The ex dividend date is the date of the stock trading of a company that has no right to have dividends. This will make investors who make the purchase process on this date or after that, these investors will no longer be able to enter their names into the dividend payout list.

5. Payment Date

The payment date or commonly referred to as the payment date is the time when the process of paying dividends from a company to investors who do have the right to receive dividends. That means that on the payment date the shareholders can get dividends in accordance with the dividends distributed and the type determined by the company, both cash dividends and stock dividends.

How to Calculate Dividends

After knowing all the explanations for dividends. Next, we will learn together about how to calculate dividends. The following is an example of how to calculate dividends quoted from the official website.

Drinking Water Company has 1,000,000 shares. This company managed to generate a net profit of IDR 500,000,000.-. The dividend distribution policy or commonly called the Dividend Payout Ratio is 40% of the net profit generated by the company. By using this data, how to calculate dividends in the company CV. Drinking Water namely, as follows:

Dividend = Net Profit x Dividend Payout Ratio
= IDR 500,000,000 x 40%
= IDR 200,000,000
Dividends/shares outstanding = IDR 200,000,000/1,000,000 shares
= IDR 200 per share

So, that’s an explanation of the meaning of stock dividends in general, the meaning of stock dividends according to experts and their types. Thus the discussion about the meaning of stock dividends, I hope all the discussion above is useful for you.