Dividend refers to the business concerns net profits distributed among the shareholders. It may also be termed as part of the profit of a business concern, which is distributed among its shareholders.
According to the Institute of Chartered Accountant of India, the dividend is defined as “a distribution to shareholders out of profits or reserves available for this purpose”.
TYPES OF DIVIDEND/FORM OF DIVIDEND
- Cash Dividend: If the dividend is paid in the form of cash to the shareholders, it is called the cash dividend. It is paid periodically out of the business concerns EAIT (Earnings after interest and tax). Cash dividends are common and popular types followed by the majority of the business concerns.
- Debenture dividend: In this form of a dividend, the company may issue debentures in lieu of dividends to its shareholders. Such debentures carry interest at a prescribed rate and are also payable after the prescribed expiry period.
- Stock Dividend/Bonus share: When the liquidity position of the company is not good and the company is unable to pay a cash dividend, it can issue shares to the shareholders from accumulated past profits.
- Script Dividend: The company may issue promissory note payable after few months or it may issue convertible dividend warrants redeemable in a few years. Such dividend is known as a scrip dividend.
- Property Dividends: This form of dividend is unusual and may be paid in the form of inventory or securities of subsidiary companies.
- Composite dividend: When a part of the dividend is paid in cash and balance is settled in any asset form, this is known as composite dividend policy.