Dividends are payments made by a company to its shareholders during a specified time intervals, say, quarterly or yearly. It is the portion of corporate profits paid out to stockholders. When a company earns money out of the business, that money can be put to two uses: it can either be re-invested in the business or it can be paid to the shareholders. This payment is called dividend.
Stocks are considered an equity investment. So if someone or a company invest in a stock, they have an ownership stake in the corporation that issued it, or offered it for sale. Stocks are kind of like pieces of the corporate pie. When you buy and share stocks you own a slice of the company. So why do people buy stock? The corporation’s stockholder or shareholder sometimes involves millions of people and companies. They all have equity in the company as I referred to earlier, or they own a fraction proportion as a whole. They buy stocks because they expect to profit when there company gains profit. There are two different type of stocks; common and preferred stock. Common stock is the most common form of stock. With having ownership of a common stock, a person can exercise their right to vote on corporate decisions. This is the most distinct difference
Preferred dividends are generally fixed they can be valued as a constant growth rate of zero. You use the zero growth models for the preferred stock and the assumption that the dividends always stay the same and you use the constant growth model for common stock because the dividend grows by a specific percent a year.
When a company goes public it is not always positive. One disadvantage of going public is the owner or owners of a company cannot manage the company like it is his or her private company anymore. The business must make sure and acknowledge that they are responsible to shareholders and will need to make sure that they have quarterly calls and explain their business actions and why they made the choices they did. A company making this transition and going through this process can longer just do what they want and get away with it. They have to take the responsibility and remember to respect shareholders in order to have a successful company and continue to grow. Another disadvantage carrying from the last issue is that all
Advantages- Less liability for stakeholders. Ability to raise funds/capital in the form of stocks as needed.
To put it simply, in financial terms, to maximize shareholders wealth means to maximize purchasing power. Throughout the years, we have learned that markets are most efficient when the company is able to maximize at the current share price. Every company’s main goal should be to strive to maximize its value to every single one of their shareholders. Common stock represents the value of the market price, and it also gives the shareholder an idea of the different investment, financing, and dividend decisions made by that particular firm.
Being a stockholder can have great rewards like a viable source of income, or an eggs nest for retirement, however it does have its downsides as well. Owning stock in a corporation bears the risk of losing all one’s investment if the company goes bankrupt. Aside from financial benefits, owning stock allows stockholders to have a voice (however small it may be) in the company’s direction.
If a person owns stock, or shares of stock, then they possess an ownership interest in a corporation. The owners will receive dividends when the corporation reflects a profit. All corporations issue common stock, however some issue preferred stock along with its common stock. Stocks can be bought and sold.
It has the option to distribute the cash in the form of dividends. Shareholders were taxed on cash dividends at ordinary income rates whereas gains realized on shares that were repurchased received capital gains treatment.
Yet another advantage of going public involves the ability to use stock in creative incentive packages for management and employees. Offering shares of stock and stock options as part of compensation may enable a small business to attract better management talent, and to provide them with an incentive to perform well. Employees who become part-owners through a stock plan may be motivated by sharing in the company 's success. Finally, an initial public offering provides a public valuation of a small business. This means that it will be easier for the company to enter into mergers and acquisitions, because it can offer stock rather than cash.
A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.
There have choices of taking the dividend payment or reinvesting to the investors when they buy a dividend stock. If they reinvest the dividends into the stock, they add more value in investment for compound interest when they buy more shares.