Cash dividends can be defined as the percentage of profit or recent earnings paid to the shareholders of a company in cash. The funds are transferred through cash, unlike stock dividend or any other form. The management and board of the company decide upon the dividend that is to be paid to the stockholders. They determine if the dividend payment is to be kept the same or to change. Most of the brokers try to convince their clients to reinvest in that company. In fact, long-term investors do reinvest to maximise their profit earning.
The cash dividend is one of the most common ways of returning the capital to the shareholders in the form of cash payment periodically. It is commonly paid on a quarterly basis. However, some shareholders do get paid monthly, semi-annually, or annually from the company that they invest in.
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The entire cash dividend process has been broken down into simpler steps by the board of the companies. Below mentioned is some of the important dates involving the entire cash dividend process.
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After declaring the dividends, a company debits all its retained revenue and credits an amount in the liability account in the name of dividends payable. On the day of payment, the company makes a debit account entry of the dividends payable and credits the cash account for the same cash outflow.
Cash dividends, however, have got nothing to do with its income statement. But it does shrink a company's shareholder's equity and cash balance by the same amount. Cash dividends are reported as a valid financial activity in the cash flow statement of the companies.
There are multiple reasons why cash dividend is considered important for a business.
The companies that have a steady cash flow usually are ideal for distributing cash dividend as their business have surpassed the growing stage and have secured a stable position in the market. Usually, the small business that is still in its growth stage does not distribute its revenues to the shareholders as they need money for their own operational activities.
Cash dividends- Cash dividend refers to the distribution of the recent profit or revenue earnings of the company to the shareholders in the form of cash. This is generally paid quarterly, but sometimes cash dividends are paid annually and semi-annually as well.
Stock dividends- Stock dividend refers to the increase in stock given to the shareholder by the company during the time of the revenue income. The increase in stock depends on the amount of liquid cash available to the company.