Companies that choose to pay dividends adhere to some basic rules. Since a company's purpose is to maximise the long-term profits for shareholders, a company will generally want to make sure that all investors are treated fairly. When you invest in a dividend company, you may want to know what these rules consist of.
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Board of Director Approval
A company does not have to pay dividends, but may do so if there are profits available and the company wants to share those profits. Generally, corporations are established to maximise shareholder profits, but they need the approval of the board of directors before any dividend payments can be made. The board must vote on dividend payments and how much the dividend will be.
Shareholders are informed of the dividend, if any, at the annual shareholder's meeting. This meeting is held for all of the shareholders of the company and makes the declaration of a dividend public. This meeting is also the place where the amount of the dividend and the date the dividend will be paid is made public.
The corporation notifies the stock exchange that they are listed on what the dividend payment will be and the type of dividend. For example, a dividend stock listed on the S&P500 will notify the exchange of the dividend it is paying, and whether the dividend is a cash dividend or a stock dividend. Cash dividends are paid as cash to investors, while stock dividends are paid as additional stock to investors.
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