Dividends
What is a dividend?
Dividends (lat. dividendum - to be divided) - profit of a joint stock company or economic entity, which is distributed among the shareholders or security holders in accordance with the share of shares belonging to them.
Distributable amount is calculated after taxes, replenishment of insurance and other reserves, deductions to funds, etc.
In other words, dividend - is a sum of money received for the contribution to the development of the company, expressed in the company shares received (monetary dividend). Less frequently, dividends are paid in company property or shares.
Dividends can be received both by ordinaryas well as by preferred shares.
How are dividends accrued?
A joint-stock company (enterprise) makes a profit from its activities during the year. Then, the shareholders' meeting decides what percentage of the profit is to be used for dividends (to be divided among the shareholders).
It is from these funds that dividends are paid. It must be remembered that the company is not obliged to make payments every year. The decision to pay must be made by the general meeting of shareholders.
And the meeting often decides that it is more profitable to invest in the further development of the company in the hope of future earnings.
The exception is the preferred shares, on which dividends are paid in any case (unless the company goes bankrupt).
How are dividends paid?
The order of payment and the amount of dividends to be paid are determined by the general meeting of shareholders. The amount of dividends depends directly on the result of the company's activity, on the net profit received after all taxes and reflected in the annual financial statements.
According to Russian law, dividends can also be paid in the middle of the year based on the results of a quarter, six or nine months of activity. But in practice such an order is not common. On the contrary, shareholders often refuse to distribute profits at the meeting, forming special funds or reinvesting profits for further activities in order to increase competitiveness.
Dividends can be paid once a year or more often, but are called interim or final (i.e., annual) dividends. Some companies pay dividends steadily from year to year.
How big is the dividend return?
Currently in Russia, the dividend yield (i.e., the ratio of the income received to the price of the stock) is on average 5%.
Compared to foreign indicators (where there are companies with a very high dividend income), this is extremely small. Therefore, in Russia, almost the only way to make money on shares is to "play" on their exchange rate.
Nevertheless, the preferred shares of some companies in Russia can also bring a decent income.