Dividend

It is simple the amount paid by the company to its shareholders. They are sharing some of the earnings with the shareholders for investing capital in the company. The ones who are holding the stocks till the ex-dividend date.

Does every company pay dividend?

Nope, for instance Berkshire Hathaway doesn’t pay dividend. There are numerous more companies which don’t payout dividend especially the nascent ones.

Why does company pay dividend?

There is no single answer to it. Partly because the company has huge amount of profit and want it to share it with the shareholders, after the approval from the board members. Generally, the company doesn’t has any new projects in mind for near future which requires huge capital. At times, when company doesn’t pay dividend in the lines of previous quarter, there is a huge negative impact. It can be case that there is some troublesome therefore the company is not paying any dividend. For instance, General Electric declared 50% less dividend as a result the share price fell 7%. On the other hand, if a company declares higher dividends than it is a sign that the company is doing great and making huge profits.

Dividend does effect share prices as it is irreversible in nature and only the shareholders holding till ex-dividend rate will received the dividend so prices starts soaring. Although, there is a dividend irrelevant theory which means dividend doesn’t affect the share price. We will be discussing the same in one of the future articles. Stay tuned!