Dividend is a profit paid to investor. Dividend is a cash or surplus amount in a company. A company’s dividend is decided by its board of directors and it requires the shareholders’ approval.
Generally company pay dividend when they have more money in their surplus and reserves section. Dividend paid in the form of shares or cash.
Why Do Company Paid Dividends ?
Generally investor earn money from two ways while investing in stock. First one is stock appreciation and second is dividend. Their is no compulsory rules for company to pay dividends. Lets understand why companies pay dividends.
Reward For Investors
When investor believe in company and invest their money to grow company in future. Company’s board of director decided to reward investor with dividends. Only those companies pay dividend with investor, those earns money and free money in their balance sheet.
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Dividend : Attracting Investors
Dividends can be an excellent way of attracting investors since they know they’ll have recurring income from the stock regardless of what happens with its share price.
Dividends are an especially important tool during seasons when share prices are stagnant or decreasing, as investors still have a way to make a profit. In fact, dividends can entice more investors during these seasons, causing the company’s stock price to increase.
Dividend, Why Some Companies do Not Pay To Investors ?
Some company are in growing phase so they need money to increase their business that’s why they don’t pay dividends with shareholders.
Companies may choose to remain growth-oriented and not offer a dividend. This is commonly seen with young or new companies but is also seen in large companies looking to become even bigger.
Instead of distributing profits, the company reinvests it so that it can grow and allow the stock to appreciate. This attracts a different type of investor – one who wants to see a significant appreciation of the stock price.