What dividends are – this is a part of the company’s profits that the owners of securities receive at the end of the financial year. The amount of material resources depends on the results of the decision of the meeting of shareholders, but cannot exceed the amount proposed by the board of directors. Payments are not always stable: they may be delayed or not paid in a difficult economic situation for the enterprise.
Dividends mean a certain part of the profit that is paid to the founders of the enterprise after taxes have been paid. The amount of money is proportional to the number of shares on hand.
Dividends have interesting economic features:
- They are the direct income of the shareholder, which he has the right to spend at his own discretion or invest in other assets;
- When they are paid, the total profit of the enterprise is automatically reduced, which prevents spending money on its development.
The decision on the amount of dividends and the timing of payments are made at the general meeting of shareholders – in a difficult economic environment, they can be completely stopped. Such a policy helps to avoid bankruptcy of the company.
Varieties of dividends
In economics, there are several options for dividends:
By category of securities
Preferred share – allows its owner to receive a fixed amount of income, with an exact amount in the form of a certain amount of money or a share of the real value of securities.
The owner has the right to receive the residual price of the shares in the event of bankruptcy and subsequent liquidation of the enterprise.
Ordinary share – has the right to vote at the general meeting of owners, on all issues that fall within its competence. The change in the amount of dividends depends on the financial position of the company; in case of its liquidation, the owner can claim to receive a share of the company’s ownership.
By payment time
The legislation on the work of joint stock companies states that regulation and calculation of payments on securities can take place after:
- the first three months;
- six months;
- nine months;
- based on the results of the annual reporting.
The joint stock company announces its decision to pay dividends within a quarter after the end of one of the above periods. Typical standards are adopted by law.
Six months or interim – the payment option and the amount of material resources are accepted by the company’s board of directors. Each decision has its own date, but it cannot be later than one calendar month from the date of agreement.
Twelve-month – the shareholders ‘meeting has the right to decide on the payment of dividends, it is based on the recommendations of the directors’ council. The total amount paid out cannot be less than interim payments or more than the amounts indicated by the board of directors.
By payment option
In monetary units – the standard option for paying dividends implies income in the country’s currency. The total remuneration is determined by the income received and taxes.
Property – before payment of property, an assessment of its real market value is made. As an independent expert, the shareholder can engage a public or private appraiser.
Full dividends – paid in total amount once.
Partial dividends are withdrawn in parts throughout the calendar year.
Amount of dividends
The total amount of material funds received for shares depends on the profit of the enterprise and the dividend policy of the company.
The total income of the company can be directed to:
- To pay the due remuneration;
- Secondarily invested in a business to increase production, purchase new equipment, take over a competitive company.
The standard policy of joint stock companies implies the division of income: part of it goes to pay dividends, the rest is used to modernize the company.
The amount of shares for which profit is distributed is regulated by the shareholders’ council. The main recommendations are given by the meeting of directors, the total number of payments cannot exceed the specified amount.
On the territory of the Russian Federation, dividend income in large enterprises varies from 5 to 10%.
When are paid
The decision on the final payments for the ended calendar year is agreed upon at the shareholders’ meeting. The procedure takes place after summing up the results by the company’s accounting department and calculating the amount of real profit. The company policy defines the following provisions:
- the amount of profit that will remain in the accounts of the company;
- the amount of income allocated to pay for the preferred type of securities – refers to the priority tasks;
- the amount of funds earmarked for payments on standard shares are second order tasks.
There are conditions under which the implementation of the dividend payment process is impossible:
- Full payment of the company’s charter capital has not been made;
- The enterprise is on the verge of ruin or the transfer of money on dividend obligations will lead it to such a state;
- The size of economic resources is less than the volume of the authorized capital and the reserve – or is reorganized into such a state after the payment is made;
- There was no sale of securities that were included in the preliminary calculations.
Key dates determine the procedure for dividend payments:
- Announcement time – when the directors decide on the time of payment of earnings and their volume on shares.
- Ex-dividend date – means the period of time from the beginning of which any securities of the enterprise, put up for sale, will not be included in income for the past financial period.
- Drawing up a list – implies a certain list of participants for whom a certain part of the company’s profit will be distributed. All shareholders included in the list are entitled to receive remuneration for the past financial period.
- Transfer time – funds are transferred to the depositor’s bank or brokerage account. The standard period cannot exceed two months from the date of the announcement of the decision of the board of directors.
To receive the first dividends on shares, you do not need to own them for a long time, it is enough to purchase them before the appointed ex-dividend date. At this time, a sharp increase in the market value of securities is observed on the stock exchanges, which does not allow speculation in order to get quick and profit.
Tax legislation provides for the payment of dividends to individuals and legal entities.
People who receive material assets through dividends must pay taxes according to certain criteria:
- residents or persons staying on the territory of the Russian Federation for more than 183 days in a calendar year are subject to a 13% duty;
- non-residents or those outside the country, in the territory of the Russian Federation for less than 183 days, pay 15% of income.
The amount of taxes for a legal entity depends on several indicators:
- Russian enterprises – 13%;
- Russian companies with more than half of the authorized capital of a company that pays dividends are not taxed;
- foreign firms – 15%.
An exception is provided for foreign enterprises – in order to avoid double taxation, the size of the final rate can be changed on an individual basis.
How to become a shareholder
To obtain ownership of a certain amount of securities and dividends, it is necessary to follow the standard algorithm:
Choosing a broker – the type of brokerage company depends on the type of shares that the potential buyer wants to purchase. If it is necessary to obtain domestic securities, any broker can deal with the problem, for the purchase of foreign securities – a person with direct access to international stock exchanges. When looking for a broker, you need to pay attention to its rating, the availability of tariffs, the minimum investment amount – it can vary within 30-100 thousand rubles.
Signing a contract – to draw up a brokerage agreement, you will have to visit the office of a financial company or simply download the Tinkoff Investments application. The procedure for opening a trading account for purchasing securities takes about half an hour.
Buying shares – after transferring the required amount of material assets, the buyer chooses securities with attractive quotes for him. The purchase can take place through a mobile application, by phone, or using a specialized terminal. Securities are usually sold in a certain quantity: from one to several tens of units.
Expectation of dividends – after the acquisition of shares, it is necessary to wait for the date on which the time of the next payment to shareholders will be announced. Upon opening an individual investment account, there is an exemption from the payment of income tax (PIT).
Some banks offer interesting mobile apps for buying and selling stocks. Tinkoff Bank has developed its own program for mobile remote work with securities:
- investments are made using a smartphone;
- any transactions do not require working at a computer – the mobile application easily copes with the bank’s services and ongoing transactions;
- after setting the price for a transaction in securities or currencies, you can forget about the problem – the application will automatically inform the client about the conditions that are suitable for the client;
- the service takes into account the dates of payments for each share;
- the bank guarantees technical support without interruptions, weekends and holidays.
The user can get advice about Tinkoff Investments at any time. The application uses news and forecasts – the opinion of investment analysts and authoritative publications, without intrusive advertising, with the most convenient format.
The benefits of shares on which dividends are paid include the regular receipt of a certain amount of income. The owner can invest them in any other business, regardless of the market value of the already purchased securities.
Such income should be considered as an additional source of material well-being – stock prices are constantly changing, the company may enter a crisis and stop payments. For those new to the financial market, it is better to purchase preferred shares – payment on them is guaranteed.
Any novice investor should realistically assess their capabilities and experience. A careful study of information on securities, quotes and forecasts about a particular company will prevent unprofitable investments and loss of start-up capital.
Do you think getting dividends is cool? Write your opinion in the comments, if you liked the article, rate it!