What Is Common Stock Dividends ?
A common stock dividend is the payment that the company makes to common stockholders from the profits that it generates. This payment of dividend is no different from other dividends, and it is in the form of cash. However, there are laws in place to check the amount of dividend that is paid to stockholder especially when the payment is equal to liquidation. These types of dividends could be made with the intent of deceiving the creditors. |
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Common stock dividend is made in equal amount but each stockholder only get the payment based on the number of shares that he owns. Sometimes, common stock dividends can also be in the form of stocks wherein added stocks are given to the shareholders. When the common stock dividend is in the form of stocks, the number of stocks is equally divided between the shareholders based on the number of shares the investor already has.
A company will pay common stock dividend based on its cash flow. This is important to note as many stockholder may think that these dividends are paid based on the earnings. This means that even if the company has made a net loss, it can still pay dividends if it has a good cash flow. Usually this decision is taken up by the Board of Directors of the company.
The reason why companies pay dividend even if they suffer from a net loss is because the want the investors to know that the company is stable. Of course, it goes without saying that the moment the amount of dividend is reduced, the share price of that company would plunge as investors would get wary that the company is not performing well. So, usually companies keep maintaining the same amount of dividend payment as the previous years even if they suffer from a net loss one year. This ensures that the investors do not sell their stock.
Usually dividend is not lowered if the company is facing a temporary issue. Likewise, dividend is not increased just because the company has one good year.
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