1) What it means to "issue a dividend"
2) Are dividends good or bad?
3) Does it matter if a company issues a dividend or not?
1) If business is succeeding, then shareholders are happy too because the value of their investment has gone up. Fantastic.
But shareholders can't really "make" any money unless they sell their shares, and they don't want to do that because company is so awesome.
But wait, there's another option:
company could issue a dividend. That means company use some of the money making in the business and pay it back to shareholders as a way of saying, "Thanks for investing with our company."
So when dividend time comes around, shareholders get a check for a percentage of the money they have invested. (It's called the "dividend yield," if you must know.)
So if you own 1000 shares worth 100 Rs each, he has 100,000 Rs worth of stock. If company pay a dividend of 3 Rs, that means the dividend yield is 3 percent (3Rs/100Rs). In other words, You will get a 3% percent return — or 3000 Rs — on Your 100,000 Rs investment.
2) That sounds great for shareholders, but are dividends a good idea for the company?
By paying a dividend instead of investing that money back into the company, might be losing an opportunity to grow even more.
dividend is a great way to direct people to buy stocks. Many investors like to focus on companies that pay dividends because they're simply interested in getting that "free money."
If a company has paid a dividend for 20 years and has never lowered it, then that's a strong sign that a company is stable.
3) High-growth companies rarely offer dividends, because all of their profits are reinvested to help sustain their higher-than-average growth.
Company can decide to cut their dividend in order to make sure they are having enough money to keep the company going.
They can help or hurt, depending on the situation.
So the next time you go hunting for stocks with a generous dividend, make sure you're looking at a good company too. Buying based only on a payment isn't smart investing.