Dividends are a portion of company profits that are paid to its shareholders.
With any earnings retained a company may decide to pay dividend to its shareholders. They will typically be paid via cash although sometimes can be in form of stock or other property, it is calculated on a per shares basis and the amount will be equal across all shareholders. The dividend amount and date payable will be determined by the board of directors as well as whether it should be paid through use of the company's current or previous years profits. The frequency of dividends being paid can vary from every one, three, six or twelve months, some company's may also pay Special Dividends which are non recurring forms of payment.
A Dividend is a means of return for shareholders providing them with a reward and a source of income for investing in the company. It is however important to note not all company's will pay out dividends to their shareholders. For example newly formed or growing companies may not pay dividends to their Shareholders, this enables them to make more efficient use of a larger retained earnings amount. By doing this they are be able to fund additional company growth and look to increase future profit amounts. On the other hand a company that has reached a certain level of maturity its prospect for growth and need for Retained Earnings reduces, giving a greater inclination to distribute to investors via dividends.
A stable Dividend pay-out can represent a sign of business maturity and establishment, this will work in favour for the company and help them build a better reputation amongst their shareholders and potential investors. From a company's perspective any Dividends payable become a financial obligation for a company, these are classed as current liabilities usually due within the next twelve months.