Distribution of profits to shareholders based on the shares owned, that
is the meaning of stock dividends in general. In other words, the meaning of
dividends is the result paid by the company to shareholders in the form of
shares and cash.
Meanwhile, the rate of return itself is one of the things that is
expected when you invest in stocks. The form of return in stock investment is
divided into two, namely capital gains and dividends.
Capital gain is the difference between the selling price minus the
purchase price. For example, if we buy a share from a national company for IDR
5,500 and sell it for IDR 6,000, then the capital gain obtained is IDR 500 per
share, or as a percentage of 9%.
While return in the form of dividends means that dividends are part of
the company's profits distributed to shareholders. As an investor who buys a
stock, you certainly hope that the company will experience a profit or profit.
If the company records large profits, the company can distribute these
profits to its shareholders in the form of stock dividends. The meaning of this
dividend is to maintain the company's capital level; This dividend provides
benefits to the recipient because it reduces the amount of tax to be paid
(stock dividends).
In another explanation, the meaning of stock dividends is dividend
payments made in the form of additional shares and not in the form of cash
payments. Companies may decide to distribute this type of dividend to
shareholders if the company's cash availability is limited.
The dividend distributed by the company to shareholders is calculated
based on the difference between the company's profit minus retained earnings.
This retained profit is the profit kept by the company to finance future
expansion.
So, can companies only use the retained earnings option to allocate
profits? Companies have several options in using profits, namely as follows
where the decision to use profits is determined in the GMS (general meeting of
shareholders):
- Retained Earnings: Profits are retained by the company, used for re-investment and not distributed to shareholders.
- Stock Buy-Back: Profits are used to buy back (buy-back) shares on the stock exchange. Stock buy-backs are common on Wall Street, but they are rare in Indonesia.
- Dividends: Profits are paid in cash to shareholders as dividends.
Meaning of Dividends: Types of Dividends
Further discussing the meaning of dividends, there are several types of
dividends that you need to know. In stock investment, the meaning of dividends
has several forms that can be adjusted to the ability and position of the
company.
Dividend Meaning: Cash Dividend
The first type of dividend is Cash Dividend or cash dividend. This type
of dividend is paid to owners or shareholders in cash.
This cash dividend is the type most often used by various companies. In
addition, cash dividends are also a type that is a favorite of many
shareholders.
Meaning of Dividend: Stock Dividend
The next type of dividend is a type of stock dividend or stock dividend
given in the form of shares. This type of dividend will eventually be able to
increase the number of outstanding shares.
If dividend payments in the form of shares are made, then the liquidity
position of a company will not change. This is because payments with stock
dividends are not part of a company's cash flow.
Meaning of Dividend: Goods Dividend
For the next type of dividend is a type of property dividend or goods
dividend which is a type of dividend distributed in kind, other than cash.
However, there are several things that must be considered by the company in
distributing this dividend.
A company must ensure that the goods distributed are goods that can be
divided. Not only that, it must also be ensured that the distribution of
dividends by a company cannot interfere and has a regular effect on the
company.
Meaning of Dividend: Debt Dividend
Dividends can also be given in the form of a script or pledge of debt,
this type of dividend is referred to as a dividend script. In the existing
script, a certain amount will be stated to be paid to the script holder.
The script will also include a due date for paying it. Applying
dividends using this type of script will make a company have debt, but in the
short term.
Meaning of Dividend: Liquidating Dividend
The next type of dividend is different from other types of dividends,
this liquidating dividend does not come from profits earned by the company.
This type of dividend is the opposite of all existing types of dividends.
Giving dividends that are distributed alone will refer to a reduction in
the capital of a company.
Meaning of Dividend: Dividend Calculation
After knowing the meaning of dividends and their types, here are some
methods commonly used by companies to calculate dividends. How to calculate
dividends becomes important once you know the meaning of dividends and their
types if you want to start investing in stocks.
Meaning of Dividends Calculation of the Dividend Payout Ratio (DPR)
The Dividend Payout Ratio (DPR) is the ratio of how much of a company's
profit is divided into dividends to shareholders.
Example:
• Net profit of PT. ABC is IDR 1,000,000,000.-.
• ABC decided to distribute dividends of IDR 500,000,000 to
shareholders.
• DPR = 500,000,000 / 1,000,000,000 * 100% = 50%.
• So, the Dividend Payout Ratio (DPR) from PT. ABC is 50%.
Meaning of Dividends Calculation of Dividend Per Share (DPS)
The figure for the type of dividend calculation per share is obtained
from the dividend distribution of the company with the total number of shares.
Example:
• ABC decided to distribute dividends of IDR 500,000,000 to
shareholders.
• The total number of shares of PT. ABC is 1 million pieces.
• DPS = 500,000,000 / 1,000,000 = IDR 500.
• So, Dividend Per Share (DPS) or dividends per share received by
shareholders is Rp. 500,-
Meaning of Dividends. Dividend Yield Calculation
Dividend yield is a comparison of how much dividends are distributed by
the company to the price of shares currently outstanding.
Example:
• Dividend Per Share (DPS) from PT. ABC is IDR 500,-.
• Share price of PT. ABC is IDR 10,000.-.
• Dividend yield = 500 / 10,000 * 100% = 5%.
• So, dividend yield from PT. ABC is 5%.
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