What are Dividends?

Dividends are profits distributed by a joint-stock corporation among the shareholders according to year, half-year, rare quarterly results.

In most cases, dividends payment on stocks is not the purpose of their acquisition. More frequent stocks are bought for considerable increase of their market value in course of time. Price growth can multiply exceed any dividend return. Small dividends are paid on most stocks or they can be not paid at all. There are growth stocks on any stock markets on which dividends are not paid. All current profit companies invest in business for the quickest development of a company. But shareholders do not complain. Powerful growth of stocks of such companies brings high profits.

A dividend return is determined as relation of dividend on a stock to the current market value of stock, multiplied by 100%. The more expensive you buy a stock, the lower its dividend return.

As a rule, the general size of dividends is determined in percents from the net income (after taxation). The fixed sum on preferred stocks, paid as a dividend, is approved by corporation statute, for example, in size of 20% net income.

How to receive dividends

There is no necessity to keep stocks the whole year to receive dividends. It is enough to hold stocks on the day of closing of stockholders’ register. The list of people, who have the right to receive annual dividends, is also the list of people, who have the right to participate in the annual general meeting of stockholders. The board of directors takes the decision about calling of the general meeting of stockholders and sets the date of register closing. The date of making the list of people, who have the right to participate in general meeting of stockholders, can not be set before the date of decision making about holding general meeting of stockholders. But sometimes stockholders find out about the date of register closing after it already happened.

It is possible sometimes to notice that after register closing the market cost of stock reduces on the size of dividend.

Registers’ closing and meeting of stockholders take place mainly in spring and summer.

Board of directors recommends the general meeting of stockholders to pay one or another sum of dividends (or not to pay). The telling example: in 2005 Board of directors of the Russian "Sibneft" Oil Company suggested at first not to pay dividends to stockholders according to work results in 2004, then "changed their mind" and offered the stockholders’ meeting to approve payment of dividends in size of 100% net income.
Decision on the size of dividends is finally approved by voting on the stockholders’ meeting.

So, if you got in the register closing, you will receive an invitation to participate in the stockholders’ meeting, but it is better to watch independently.

To stockholders - individual persons - dividends can be transferred to the accounts of cards, transaction accounts and other accounts in banks, paid in cash available in the cash desk of a company, sent by a postal order to the address of a stockholder. To stockholders - clients of brokers - dividends will be transferred to their brokerage accounts.

Payment of dividends can last for a few months, for example, to the end of fiscal year.