Dividends are paid by companies to shareholders as a cash reward for their investment support. Dividends are paid out of company profits..
The term "dividend" refers to the amount paid out of a company's profits to its shareholders. In Australia it is common practice to pay both an interim and a final dividend.
Earnings not distributed in the form of dividends are retained in the business and help it to grow. They still belong to the shareholders collectively.
Dividend announcements involve two dates: the "record date", which determines who is entitled to the payment, namely, holders on the company's register at that time, and a "dividend payable date" some weeks later, when the actual cheques are posted or equivalent electronic credits are put through.
For securities listed on the stock exchange a third date is also used. Five working days before and including the record date the stocks go "ex dividend" (xd), meaning that the sellers of shares rather than the purchasers become entitled to the payment. Before that the stock is traded on a "cum dividend" (cd) basis, meaning the reverse.
Theoretically, the market price at that time should drop to reflect the amount of the distribution. If it does not, and the "ex dividend" price is equal to the previous "cum dividend" price, then the shares are said to have "carried" their dividend..
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