Cash Dividend

This is the most common form of dividend. It is derived from the net profit. The board of directors decide on the issuance of dividend during the Annual General Meeting (AGM).

A shareholder will receive dividend depending on the shares they own. This can be shown as;

1. Ordinary Shareholders- They receive dividends at the discretion of the directors and after preferred shareholders.
2. Preferred shareholders- They are grouped into cumulative, participating, convertible and callable.

Preferred shares are paid before the ordinary shares.

• Cumulative preferred shares

A cumulative feature protects the investor in cases when a corporation is having financial difficulties and cannot pay the dividend. Dividends on cumulative preferred stock accumulate in arrears until the corporation is able to pay them. If the dividend on a cumulative preferred stock is missed, it is still owed to the holder.

• Participating shares

Holders of participating preferred stock are entitled to receive the stated preferred rate, as well as additional common dividends. The holder of participating preferred receives the dividend payable to the common stockholders over and above the stated preferred dividend.

• Convertible shares

A convertible feature allows the preferred stockholder to convert or exchange their preferred shares for common shares at a fixed price known as the conversion price.

There corporation will send out a cash payment in the form of a check directly to the stockholders or through the brokerage firm.

Stock Dividend

A corporation will issue a stock dividend when it wants to conserve the cash for business purposes but still maintain its dividend paying policy. With a stock dividend, each investor will receive an additional number of shares based on the number of shares that they own. The market price of the stock will decline after the stock dividend has been distributed to reflect that there are now more shares outstanding, but the total market value of the company will remain the same.
Scrip Dividend

With a Scrip dividend, new shares are issued by the company, which can be acquired by investors instead of a cash dividend payment.

Liquidating Dividend

A type of payment made by a corporation to its shareholders during its partial or full liquidation. For the most part, such a distribution is made from the company's capital base, and as a return of capital, is typically not taxable for shareholders.