From Wikipedia, the free encyclopedia:
Understanding Dividend and Distribution
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.[1] When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. There are two ways to distribute cash to shareholders: share repurchases or dividends.[2][3] Many corporations retain a portion of their earnings and pay the remainder as a dividend.
A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholder equity section in the company's balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends.
Real Estate Investment Trust Real Estate Investment Trusts (REIT for short) are securities of companies that manage properties in their portfolio and distribute the profits from these properties, revenue from the rents and leases, to their unitholders. Proper terms for REIT are slightly different from a normal stock counter. In REIT, a stockholder is known as a unitholder, a share is known as a unit, dividends are called distributions. As REITs are unique, profits that come from their rents or leases are to be distributed at 90%! Yes, 90% of the profits MUST be distributable.
Scrip Dividend Scheme
Frequently Asked Questions
1. What is the Scrip Dividend Scheme (SDS)?
The SDS provides shareholders with the option of receiving their dividends in the form of shares instead of cash. Participation in the SDS is optional.
2. Who is eligible for participation in the SDS? Are overseas shareholders eligible for participation in the SDS?
The SDS is currently available only to shareholders with registered local addresses. This is to avoid possible violations of securities laws in other countries.
3. How do I participate in the SDS?
Shareholders who wish to participate can either opt to receive scrip for only the dividend being declared, or they can opt to receive scrip permanently for future dividends. Please note that the scrip option may not be made available every time a dividend is declared. Therefore, shareholders choosing the permanent option will only receive scrip for those dividends where the SDS applies.
Shareholders will receive a form called a Notice of Election whenever the SDS is available for a dividend being declared. They should make their choices known and return the form by the specified deadline to the Central Depository (CDP), which is the agency processing the form:
Once you understand what is scrip dividend, you will understand bonus issue. Bonus issue is a special "lucky" stock dividend that may or may not be paid out by corporations.
You can also think of scrip dividend as IOU from your invested companies. However, this IOU is not fixed in value so you must have strong faith in the companies to stay in the Game.
What is Bonus Issue?
Uncle8888: "Bonus issue is basically for
corporation to transfer part of its wealth held in custodian from the
corporation's hand to the hands of its shareholders and let the
shareholders to decide for themselves whether to stay in the game or
not."
Someone: "I don't see how the bonus issue transfer anything from the corporation to its shareholders. Can elaborate more? What I see is that nothing left the corporation in a bonus issue. You have more in terms number of share, but not more in ownership of the company. you don't get more dividend, either."
The Giant Carrot
The Giant Carrot is buried in the Farmer's farmland. Investors can only see with their eyes; but can never touch it no matters how large is the Carrot.
The Farmer (corporation) is the only one who can decide to VIRTUALLY AND MAGICALLY pull out this Giant Carrot from the ground and chop, chop, chop ..
After the bonus issue, this Giant Carrot becomes smaller. Where did the missing portion gone to???
The missing portion of the Giant Carrot now magically acquires a new name called CAPITAL.
Actually, nothing has changed for the Farmer in accounting wise; but for the shareholders, they now have Cash Converter Chye Tow. Good or no good??? You say leh.
Posts
Theoretically, after bonus issue, the share price would adjust lower to reflect that there are more shares in issue. Of course, in reality, it seldom happens. But that is not to say that the shareholders would benefit in any way in certainty. A bonus issue which transfers the retained earnings to share capital is just to reflect that the company now is in a different state with a higher share capital. Last time, share capital is important, because it shows how much money the original owners put into the company. Nowadays, share capital often could be near to 0.
ReplyDeletetransferring retained earnings to share capital, there is certain implication. In an extreme situation, let's assume, all retained earnings are transferred to share capital. If the next year, the company does not make a profit, it can't declare a dividend as retained earnings is 0, even if it has substantial amount of cash on its balance sheet. What if the company want to distribute part of its cash to its shareholder? capital reduction, but not dividends. Transferring retained earnings to share capital, it is kinda commitment to not withdraw from its share capital normally, also a reflection that the company is a larger company and able to do larger business.
ReplyDeleteAhhhh, finally found your GIANT CARROT post! ;-)
ReplyDelete