Saturday, April 2, 2016

The Vital Things To Consider Concerning Dividend Yield

By Melissa Snyder


Many investors venture into the business world with the sole intention of making profit. There are a lot of investment opportunities that guarantee an individual some returns. If a person bought shares in a company and the company proves to be profitable, they are entitled to a certain percentage of the profit. The profit is distributed to the shareholders according to the company policy. The company director gets to decide how the profit is to be distributed and what percentage is given to each investor according to ones share holdings. There are quite a number of formulas that one can use to calculate dividend yield.

Dividend is considered a good way for a company to communicate to their shareholders and other prospective investors that the company is financially stable or healthy. Through such distributions, an organization shows that its future is positive and that its performing well. The goal of company managers is to make profit while the shareholders goal is basically growth and expansion of business.

The payments on shares held by ordinary shareholders are mostly set by the organization management. Payment to holders of ordinary shares is done after all the shareholders of preference shares have been paid and debenture interest paid. Ordinary shareholders receive their payment after all the companys expenses have been settled.

Directors can distribute the company earnings by declaring cash dividend. This is actually the most common way or form of distributing earnings. The shareholders are supposed to be paid basically according to the shares held. The company BOD announces the decision to pay on the declaration date. The calculations are then made and earnings assigned to shareholders on date of record.

Some directors may actually decide not to distribute the earning and instead re-invest it back in the business. But this has to be done with close consultation with the shareholders. Many shareholders are not after making quick profits but after growth and expansion of the company. This is why they will not mind ploughing back the profit to have the company expanded.

Trailing dividend is another type of gain which represents the amount paid within a certain period. One rule here is to consider the recent quarterly payment then multiply it by 4. This is trailing twelve months basically to maintain consistency with earning. Some companies have a policy to declare interim and final dividends in the same year.

Each and every company has an earning yield policy. This policy is a set of guidelines basically a company uses when deciding how much of the profit made is to go to shareholders. There are several approaches to these dividends which are, stability, hybrid and residual. The shareholders of a company have some powers to influence payment but they do not have powers to increase the pay they get.

The policy concerning this earnings is influenced simply by the following. The need to basically remain profitable is one factor since such pay outs are done out of profits. Companies with insufficient funds or profits cannot be at a position to continuously declare such earnings. Effects the inflation has on amount paid out to shareholders is another important factor.




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