Types of Dividends

Stocks are all the stocks in which ownership of a company is divided ownership. In ordinary English, the stocks are collectively referred to as “stock.” Each share of stock represents fractional membership in proportion to the number of shares authorized.


There are two types of dividends: direct and non-dividend income. A dividend is a payment received from the Board of Directors of a company for the total value of all the issued shares of stock. It is paid on a regularly scheduled date each year or on some other specified date. If the dividend is a continuous stream, it is called capital gain. Any capital gain on the sale or exchange of a stock price is referred to as capital gain.

A common feature among dividends is that they are paid out to the shareholders. When a company makes money by its stock sales, it repays part of its retained earnings in the form of dividends. The same thing happens with companies that issue equity shares as well as loans. When a shareholder repays a loan amount to a lending firm, he gets a dividend. In both cases, the dividend is given to the shareholder. Thus, they are not considered as distributions to the shareholders.

Capital Gains Dividends represent the increase in the value of ownership in the company. Capital gain on the sale or exchange of shares is different from the capital gain on ownership of particular shares. The tax rules concerning capital gain and dividends are different in certain respects. This is especially true with respect to property owned by foreigners or corporations classified as non-residents of the UK. Normally, the tax treatment of dividends is much more favourable with regards to property than with other types of ownership.

A shareholder can usually choose between two types of distribution: common stock and preferred stocks. In a normal business organization, the board of directors can choose which distribution is made first. If a change occurs during the course of business, the Board of Directors will have to restart the distribution process from the beginning. This distribution system is normally done for the benefit of all shareholders, but in the case of restricted companies this distribution can be limited to a select few shareholders. A company also has the option of not distributing any of its common stock dividends at all.

As a rule, preferred stocks carry less than common stock when the dividends received are less than the total amount of dividends paid out in the last year. Common stocks are always classed as preferred stocks. Also, the Board of Directors may refuse to distribute any of the common stock dividend if they deem it necessary in the public interest. These dividends are commonly known as capital gains and are subject to a variety of income tax rules.

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