Timesofummah.com – Almost everyone who is investing in stocks, definitely expects a high return or rate of return. Well, the form of return or rate of return in this stock world is of two types, namely capital gains and dividends. In general, capital gain means the sale minus the purchase price or the increase in price after you buy a stock product.
For example, if you buy a stock product belonging to Bank Rakyat Indonesia or BRI which has the code (BBRI) at a price of Rp. 4,000. Then, you make a sale when BBRI hits the price of Rp. 4,500. So, the capital gain you get is 500 per share, or if in percentage it is 12.5%. That means you can enjoy the benefits of increasing the price or value of BBRI shares.
However, the benefits that can be felt in investing in stocks are not only capital gains. Another form of profit or return that you can get is dividends. In general, dividends are rights or allotments of companies that get profits to parties who are investors or shareholders. In buying a stock or investing in a company, of course what investors expect is that the company earns a large profit or profit. That’s because companies that manage to get big profits, then the company can distribute profits to investors or shareholders in the form of dividends.
Well, therefore, this article will discuss what dividends are. Discussion of the definition of dividends according to experts, the types of dividends, the factors that affect getting dividends to the procedure and how to calculate your dividends.
A. Definition of Dividend
According to the introduction above, dividends are distributions to those who own shares of a company that are adjusted to the number of shares owned. The majority of dividends are distributed with a fixed period of time, but sometimes there are also special or additional dividend distributions outside the specified distribution period. Dividends will be distributed to those who own shares, but with a note that the company has made substantial profits and the board of directors of a company has deemed it appropriate to declare dividends.
The function of this dividend itself is as a return from the services of investors because they have invested capital in a stock product of a company. This is what makes companies that make profits will provide profits to investors or shareholders.
In addition to this general opinion, dividends are also considered as a shareholder’s right or common stock to obtain a share of the profits of a company. If a company has decided that profits will be distributed in the form of dividends, then all shareholders of the company will get the same rights according to the number of ownership. However, there are several reasons why companies don’t always give all of their profits to shareholders. The reason used is usually for the sake of increasing the company’s capital.
A company may not pay dividends because there are more prioritized needs. For example, the company’s profits are prioritized for the sake of business expansion or development, of course this can be the reason a company does not distribute dividends to its shareholders. However, companies usually still promise to issue dividends in order to increase the confidence of shareholders for long-term plans. In addition, the promise of dividend issuance is very influential in attracting new investors who want to get a steady income.
B. Understanding Dividends According to Experts
Apart from the general understanding above, here are some opinions about the definition of dividends from experts, including:
1. Baridwan (1997)
According to Baridwan, dividends are part of a profit or profit that can be distributed to shareholders whose amount is in accordance with the number of shares owned by shareholders. The size of a dividend that can be obtained by shareholders can change from year to year. This amount depends on how big the amount of profit earned by the company.
2. Scott Besley and Eugene F. Brigham (2005)
The definition of dividend according to Scott Besley and Eugene F. Brigham is the distribution of profits earned by a company to its shareholders, whether it is from profits or profits earned during the current period or profits or profits during the previous period.
3. Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso (2011)
Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso argue that dividends are distributions made by a company to shareholders in a professional manner by adjusting the number of shareholdings. This means that shareholders can only receive profits or profits according to the percentage of their investment in a company.
4. Jamie Pratt (2011)
Jamie Pratt said that dividends are distributions of cash, shares or property to the shareholders of a company. Dividends are also a resolution of the corporation’s board of directors every quarter with the amount announced on a per share basis.
5. Nikiforous K. Laopodis (2013)
Finally, according to Nikiforous K. Laopodis, dividends are cash payment activities carried out by a company to shareholders. The dividend is a form of representation from the shareholders of the direct or indirect receipts of their investment into the company.
B. Types of Dividends
After understanding the meaning of dividends, here are some types of dividends that you need to know, including:
1. Cash Dividend
Cash dividends are dividends distributed by a company to its shareholders in the form of cash or cash. This type of dividend can be said to be the most frequent distribution of dividends. Shareholders also really like the distribution of cash dividends, that’s because shareholders will get benefits in the form of cash. The cash dividend distribution period can be done from two to four times per year, the distribution depends on the period. For the record, this dividend distribution will also be subject to tax according to applicable regulations.
2. Property Dividend
Property dividends or goods dividends are dividends that are distributed in the form of assets. This dividend is a type of dividend that is quite rarely done, usually because the distribution process is relatively difficult. Companies also generally distribute dividends in this way because there is no cash. This could be because cash from one company is being used in investing in another company’s stock or for inventory purposes.
If more cash comes out in sufficient quantities, it is feared that the selling price of investments or inventories will fall so that it can harm the company or shareholders. As a result, the distribution of dividends from the company to investors or shareholders is then tried to be carried out in the form of asset distribution
3. Liquidation Dividend
Basically, liquidating dividends are dividends distributed to shareholders in the form of a portion of the profit and a portion of the return on capital. Companies that will provide liquidating dividends are generally companies that have plans to discontinue their companies, such as joint ventures or companies that are experiencing bankruptcy.
When the company goes bankrupt and still has the remaining wealth, the remaining wealth will be distributed to shareholders. This is known as a liquidating dividend. However, if the company does not have any remaining capital, then the company cannot share anything.
4. Promised Dividends
Promised dividends or commonly called script dividends are dividends distributed from the company to shareholders in the form of debt covenants. In this type of dividend, the company makes a promise to its investors that it will pay the dividend at a predetermined time. This dividend distribution is also usually because the company does not have enough cash to pay dividends to shareholders. Therefore, a promissory note or script is made as a guarantee for the payment of dividends to shareholders.
5. Stock Dividend
Stock dividends or stock dividends are dividend distributions made in the form of shares of a company for its investors. Stock dividends are almost similar to a company’s capital restructuring or company recapitulation, but do not reduce the number of ownership of shareholders. In this type of dividend distribution, investors do not get cash, but they get an additional number of shares.
In stock dividends, investors will get an increase in the number of shares. However, if the distribution of dividends is due to other factors, then the addition of the number of shares outstanding will affect the market price of the shares and have the potential to decrease. Overall, the value of investors’ shares did not change or increase. Now, for shareholders who need quick money, they can sell the additional shares obtained by adjusting the number of shares before dividends.
Stock dividends will be very beneficial for shareholders, if the company also pays dividends in cash. This makes the shareholders get additional shares in the number of shares, but also get dividends in the form of cash. In giving stock dividends, usually the company also has the goal of saving the company’s cash so that it can be used for bigger and more profitable investment opportunities.
C. Factors Affecting Stock Policy
Now, after understanding the meaning and five types of dividends, the following will explain the five factors that can influence stock policy, including:
1. Funds Needed to Pay Obligations
When a company will get new debt or sell debt securities to finance the company, beforehand it must be planned how to pay back the debt. Debt can be paid off at maturity by replacing the debt with new debt. In addition to this method, several companies usually also use other alternative methods, such as the company having to provide its own funds from profits to pay off the debt.
Corporate liquidity is a major consideration in many dividend policies. The distribution of dividends for a company is cash that comes out, it makes the greater the cash position and overall company liquidity, the greater the company’s ability to pay dividends. Companies that are experiencing growth and the potential for profits are very large will require large enough capital to finance their investments. This is what makes the company less liquid because the capital that has been obtained is invested more in fixed assets and permanent current assets.
3. Company Growth Rate
The faster the growth rate of a company, the greater the need for funds to finance the company’s growth. The greater the need for funds to finance the company’s growth in the future, the greater the desire of a company to hold its earnings rather than be paid as dividends to shareholders.
4. Shareholder’s Status
When a company’s shareholding is relatively closed, management generally understands the dividends expected by shareholders and can act accordingly. When almost all shareholders are in the high tax class and prefer to obtain capital gains, it can make a company maintain a low dividend payout ratio.
With a low dividend payout ratio, it can certainly be estimated whether the company will retain profits for profitable investment opportunities. For companies with large number of shareholders, they can only assess the dividends expected by shareholders in the context of the market.
5. Legal Restrictions
Restrictions of a law can affect the distribution of the amount of dividends by a company.
D. Dividend Payment Procedure
Now, after understanding the meaning and types of dividends, here are some dividend payment procedures or dividend announcement dates that you need to pay attention to, including:
1. Announcement Date
The announcement date of dividend payments or commonly called the declaration date is the date officially announced by the issuer or a public company regarding the form and amount distributed and the schedule for dividend payments to be made. This announcement is usually also for the distribution of dividends on a regular basis. The announcement date usually conveys things that are considered important such as the recording date, payment date, to the amount of cash dividends per share.
2. Listing Date
The date of recording or commonly called the date of record is the time the company records who its shareholders are. Shareholders who are registered in the register of shareholders of a company have the right to receive dividends. This means that shareholders who are not listed or sell their shares before the listing date will not get the right to receive dividends.
3. Cum-Dividend Date
Cum-Dividend Date is the time or date of the last day of stock trading for shareholders who wish to receive dividends in the form of cash dividends or stock dividends from an issuer or company.
4. EX-Dividend Date
Ex-Dividend Date means the trading date of the shares of a company that no longer has the right to receive dividends. This means that if an investor makes a purchase on this date or after, the investor can no longer include his name in the dividend distribution list of a company.
5. Payment Date
The payment date is the time to make payments by a company to shareholders who have earned the right to receive dividends. Thus, on this payment date, shareholders can take the dividends that are distributed according to the type of dividends that have been determined by the issuer, whether it is cash dividends or stock dividends.
E. How to Calculate Dividend
Company CV. Water Drinking has 1,000,000 shares. This company managed to generate a net profit of Rp. 500,000,000.-. The dividend distribution policy or commonly called the Dividend Payout Ratio is 40% of the net profit generated by the company. By using these data, how to calculate dividends in CV. Drinking Water, namely, as follows:
Dividend = Net Profit x Dividend Payout Ratio
= IDR 500,000,000 x 40%
= IDR 200,000,000
Dividend/shares outstanding = Rp 200,000,000/1,000,000 shares
= IDR 200 per share