Understanding Dividends – Almost everyone who is investing in stocks expects a high return or rate of return. Well, there are two types of returns or rates of return in the world of stocks, namely capital gains and dividends. In general, capital gains mean the selling price minus the purchase price or the increase in price after you buy a stock product.
For example, if you buy stock products belonging to Bank Rakyat Indonesia or BRI which have the code (BBRI) at a price of Rp. 4,000. Then, you make a sale when BBRI touches the price of Rp. 4,500. So, the capital gain you get is 500 per share, or if the percentage is 12.5%. That means you can enjoy the benefits of rising prices or value of BBRI shares.
However, the benefits that can be felt in investing in stocks are not only capital gains. Another form of profit or return that you can get is dividends. In general, dividends are rights or allotments from companies that benefit from those who become investors or shareholders. In buying a stock or investing in a company, of course, what investors expect is that the company will get a large profit or profit. That is because companies that succeed in getting large profits, these companies can distribute profits to investors or shareholders in the form of dividends.
So, therefore, this article will discuss what dividends are. Discussion of the meaning of dividends according to experts, types of dividends, factors that influence getting dividends to procedures and how to calculate your dividends.
A. Definition of Dividend
According to the introduction above, dividends are distributions to parties who own shares of a company, adjusted for the number of shares owned. The majority of dividend distributions are carried out with a fixed period of time, but sometimes there are also those who distribute special or additional dividends outside the specified distribution time. Dividends will be distributed to those who own shares, but with a note that the company has made a sizable profit and the board of directors of a company has deemed it appropriate to announce dividend distribution.
The function of this dividend itself is as a return on investor services for having invested capital in a stock product from a company. That’s what makes a company that earns profits will provide benefits to investors or shareholders.
In addition to this general opinion, dividends are also considered as a shareholder’s right or common stock to obtain a share that comes from the profits of a company. If a company has decided that it will share profits in the form of dividends, then all shareholders of the company will get the same rights according to the number of ownership. However, there are several reasons why companies don’t always give all the profits to shareholders. The reason used is usually for the benefit of increasing the company’s capital.
A company may not distribute dividends because there are more prioritized needs. For example, company profits are prioritized for the benefit of business expansion or development, of course this can be the reason a company does not distribute dividends to its shareholders. However, companies usually still promise to issue dividends in order to increase shareholder confidence for long-term plans. In addition, the promise of issuing dividends is very influential in attracting interest from new investors who want to get a steady income.
B. Definition of Dividend According to Experts
Apart from the general understanding above, here are several opinions regarding the meaning of dividends from experts, including:
1. Baridwan (1997)
According to Baridwan, dividends are part of a profit or profit that can be distributed to shareholders whose number is in accordance with the number of shares owned by shareholders. The size of a dividend that can be obtained by shareholders can change from year to year. This amount depends on how much profit the company gets.
2. Scott Besley and Eugene F. Brigham (2005)
The definition of dividend according to Scott Besley and Eugene F. Brigham is the distribution of profits earned by a company to its shareholders, whether it’s from profits or profits earned during the current period or profits or profits during the previous period.
3. Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso (2011)
Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso argue that dividends are distributions made by a company to shareholders in a professional manner by adjusting the number of their shareholdings. This means that shareholders can only receive profits or profits according to the percentage of their investment in a company.
4. Jamie Pratt (2011)
Jamie Pratt revealed that dividends are distributions of cash, shares, or property to shareholders of a company. Dividends are also a resolution of the corporation’s board of directors every quarter with the amount declared on a per share basis.
5. Nikiforous K. Laopodis (2013)]
Finally, according to Nikiforous K. Laopodis, dividends are cash payment activities made by a company to shareholders. The dividend is a form of representation of the shareholders on direct or indirect receipts for their investment in the company.
B. Types of Dividends
After understanding the meaning of dividends, here are several types of dividends that you need to know, including:
1. Cash Dividend
Cash dividends are dividends distributed by a company to its shareholders in the form of cash or cash. This type of dividend can be said to be the most frequent distribution of dividends. Shareholders also really like the distribution of cash dividends, this is because shareholders will benefit in the form of cash. The cash dividend distribution period can be done from two to four times per year, the distribution depends on the period. For the record, this dividend distribution will also be taxed according to applicable regulations.
2. Property Dividends
Property dividends or goods dividends are dividends that are distributed in the form of assets. This dividend is a type of dividend that is quite rare, usually because the distribution process is relatively difficult. Companies also generally distribute dividends in this way because there is no cash. It could be because cash from one company is being used in investing in another company’s stock or for inventory purposes.
If a large amount of cash comes out, it is feared that the selling price of investment or inventory will fall so that it can harm the company or shareholders. As a result, dividend distribution from the company to investors or shareholders is then tried to be carried out in the form of asset distribution
3. Liquidation Dividend
Basically, liquidation dividends are dividends distributed to shareholders in the form of a portion of profit and a partial return on capital. Companies that will provide liquidation dividends are generally companies that have plans to terminate their companies, such as joint ventures or companies that are experiencing bankruptcy.
When a company goes bankrupt and still has remaining wealth, the remaining wealth will be distributed to the shareholders. This is what is referred to as a liquidation dividend. However, if the company does not have any remaining capital, then the company cannot share anything.
4. Dividend Pledge Debt
Payable dividends or commonly called script dividends are dividends distributed from the company to shareholders in the form of promissory notes. In this type of dividend, the company promises its investors that it will pay dividends at a predetermined time. This dividend distribution is also usually because the company does not have enough cash to pay dividends to shareholders. Therefore, promissory notes or scripts are made as guarantees for the payment of dividends to shareholders.
5. Stock Dividends
Stock dividend or stock dividend is the distribution of dividends made in the form of shares from a company to its investors. Stock dividends are almost like rearranging company capital or company recapitulation, but do not reduce the amount of ownership of the shareholders. In this type of dividend distribution, investors do not get cash, but they get an additional number of shares.
In stock dividends, investors will get an increase in the number of shares. However, if the distribution of dividends is due to other factors, then the increase in the number of shares outstanding will affect the market price of the shares and have the potential to decrease. Overall, the value of investors’ shares did not change or increase. Now, for shareholders who need fast money, they can make sales of the additional shares obtained, by re-adjusting the number of shares before dividends.
Stock dividends will greatly benefit shareholders if the company also pays dividends in cash. This allows shareholders to receive additional shares in the number of shares, but also receive dividends in the form of cash. In giving stock dividends, companies usually also aim to save the company’s cash so that it can be used for bigger and more profitable investment opportunities.
C. Factors Influencing Stock Policy
Now, after understanding the meaning and five types of dividends, the following will explain five factors that can influence stock policy, including:
1. Need for Funds to Pay Obligations
When a company is going to get new debt or sell debt securities to finance the company, it must have planned how to repay the debt beforehand. Debt can be repaid at maturity by replacing the debt with new debt. In addition to these methods, several companies usually also use other alternative methods, such as the company having to provide its own funds from profits to pay off the debt.
2. Liquidity
Company liquidity is a major consideration in many dividend policies. Dividend distribution for a company is cash out, it makes the greater the cash position and liquidity of the company as a whole, the greater the company’s ability to pay dividends. Companies that are experiencing growth and have enormous profit potential will require substantial capital to finance their investment. That is what makes the company less liquid because the capital that has been obtained is more invested in fixed assets and permanent current assets.
3. Company Growth Rate
The faster the growth rate of a company, the greater the need for funds to finance the company’s growth. The greater the need for funds to finance the company’s growth in the future, the greater the desire of a company to retain its earnings rather than being paid as dividends to shareholders.
4. Condition of Shareholders
If a company’s shareholding is relatively private, management generally understands the dividend expected by shareholders and can act accordingly. When almost all shareholders are in the high tax bracket and prefer to receive capital gains, it can make a company maintain a low dividend payout ratio.
With a low dividend payout ratio, of course, one can predict whether the company will retain profits for profitable investment opportunities. For companies with a large number of shareholders, they can only assess the expected dividends of shareholders in the market context.
5. Legal Restrictions
Restrictions of a law can affect the distribution of the amount of dividends by a company.
D. Dividend Payment Procedures
Now, after understanding the meaning and types of dividends, here are some dividend payment procedures or dividend announcement dates that you need to pay attention to, including:
1. Announcement Date
The date of announcement of dividend payments or commonly called the declaration date is the date that the issuer or a public company officially announces the form and amount to be distributed as well as the schedule for dividend payments to be made. This announcement is usually also for the distribution of dividends on a regular basis. The date of the announcement usually conveys matters that are considered important, such as the date of recording, date of payment, to the amount of cash dividends per sheet.
2. Date of Recording
The date of recording or commonly called the date of record is the time when the company records who its shareholders are. Shareholders who are registered in the register of shareholders of a company are entitled to receive dividends. This means that shareholders who are not listed or sell their shares before the date of recording will not get the right to receive dividends.
3. Cum-Dividend date
Cum-Dividend Date is the time or date of the last day of stock trading for shareholders who wish to receive dividends in the form of cash dividends or stock dividends from an issuer or company.
4. EX-Dividend date
Ex-Dividend date means the date on which a company’s shares are traded and no longer has the right to receive dividends. This means that if an investor makes a purchase on this date or after, then the investor cannot enter his/her name into the dividend distribution list of a company.
5. Payment Date
The payment date or payment date is the time to make payments by a company to shareholders who have earned the right to receive dividends. Thus, on this payment date, the shareholders can take the dividend which is distributed according to the type of dividend that has been determined by the issuer, whether it’s a cash dividend or a stock dividend.
E. How to Calculate Dividends
Company CV. Water Drinking has 1,000,000 shares. This company managed to generate a net profit of IDR 500,000,000.-. The dividend payout policy or commonly called the Dividend Payout Ratio is 40% of the net profit generated by the company. By using this data, how to calculate dividends in the company CV. Drinking Water, namely, as follows:
Dividend = Net Profit x Dividend Payout Ratio
= IDR 500,000,000 x 40%
= IDR 200,000,000
Dividends/shares outstanding = IDR 200,000,000/1,000,000 shares
= IDR 200 per share
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