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Ordinary Dividends

Definition

Ordinary dividends are regular payments made by corporations to their shareholders out of profits or earnings. These dividends are not eligible for capital gains tax rates and are instead taxed at the individual shareholder’s regular income tax rate. They’re usually paid in cash but can also be issued as additional shares of stock.

Phonetic

The phonetic pronunciation of “Ordinary Dividends” is: Ordinary: /ˈɔːrdnˌeri/Dividends: /dɪˈvɪdˌɛndz/

Key Takeaways

Sure, here are three main takeaways about Ordinary Dividends in HTML:“`

  1. Ordinary Dividends are regular payments made by a company from its profits or reserves to its shareholders. These dividends are usually given as cash (cash dividends), but they can also be in the form of stocks (stock dividends).
  2. From the tax perspective, Ordinary Dividends are taxable as ordinary income and not capital gains. This means they’re taxed at the taxpayer’s standard tax bracket rate, not the lower capital gains rates.
  3. The date of record, the ex-dividend date, the announcement date, and the payment date are crucial dates to consider when investing for dividends. These dates determine the cut-off for being a shareholder by the record date and when the dividends will be disbursed.

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Importance

The term Ordinary Dividends is crucial in the field of business and finance as it directly pertains to how companies distribute their earnings to shareholders. Ordinary dividends are payouts made from a corporation’s profit to its shareholders, signifying the successful performance and profitability of a company. They provide a source of regular income for investors, making certain stocks more attractive as investment options. Investors often use this consistent payout as a testament to the company’s financial wellbeing. Moreover, it offers tangible returns on investment without needing to sell the investment itself, making it a powerful tool in wealth growth and management. To summarize, ordinary dividends hold vital importance as a reflection of a company’s financial health, an attractive point for potential investors and a source of regular shareholder income.

Explanation

Ordinary dividends serve a key purpose in the financial world as a mechanism for distributing a corporation’s profits back to its shareholders. They essentially represent a portion of the earnings generated by a business and are usually given out on a regular basis, such as quarterly or annually, depending on the decision of the company’s board of directors. This return on their investment may draw investors to a particular business, acting as an incentive. Therefore, the offering of ordinary dividends can affect a company’s attractiveness to investors.A company uses ordinary dividends as a means to express its financial health and profitability to its shareholders and the wider market. They can serve as a signal about the company’s future prospects as well by illustrating the management’s confidence in sustained profitability. From an investor’s perspective, ordinary dividends provide a steady stream of income, which is particularly beneficial for income-focused investors, such as retirees. Thus, ordinary dividends play vital roles not just in distributing profits, but also in strategic positioning and investor relations.

Examples

1. Microsoft Corporation: This tech giant is well-known for issuing ordinary dividends to its shareholders. For example, in September 2021, Microsoft announced a quarterly dividend of $0.62 per share, which was a significant increase from the previous year’s dividend.2. Johnson & Johnson: The healthcare company has a distinguished record of delivering consistent ordinary dividends to its investor. Johnson & Johnson had increased its dividend payouts annually for more than 50 consecutive years, showing its commitment to returning cash to shareholders. 3. Procter & Gamble Co.: This consumer goods giant regularly pays ordinary dividends to its shareholders. Like Johnson & Johnson, Procter & Gamble has a long history of not just giving consistent ordinary dividend payouts, but also of increasing them over the years. For instance, in April 2021, the company announced a 10% increase in its quarterly dividend, marking the 65th consecutive year of dividend increases.

Frequently Asked Questions(FAQ)

What are Ordinary Dividends?

Ordinary dividends are payments made by a corporation to its shareholders, usually in the form of cash or additional shares. They are typically paid out of the company’s current or retained earnings.

How are Ordinary Dividends different from Qualified Dividends?

The main difference is the tax rate applied to these dividends. Ordinary dividends are taxed at your regular income tax rate, whereas qualified dividends are taxed at a lower capital gains rate.

How are Ordinary Dividends distributed?

Ordinarily, dividends are distributed to shareholders on a per-share basis. This means if you own more shares in a company, you would receive a higher dividend payment.

How often are Ordinary Dividends paid?

The frequency of dividend payments varies from company to company; common schedules include quarterly, semi-annually, annually, and sometimes monthly.

Can a company change the amount it pays as Ordinary Dividends?

Yes, a company is under no obligation to pay dividends and the amounts can be increased, decreased, or eliminated subject to company performance and board of director’s decision.

How do Ordinary Dividends affect a company’s stock price?

Usually, after the declaration of a dividend, the company’s stock price decreases by roughly the same amount of the per-share dividend amount on the ex-dividend date.

Who is eligible to receive Ordinary Dividends?

Generally, anyone who owns shares of the company’s stock on the record date is eligible to receive ordinary dividends.

Related Finance Terms

  • Qualified dividends
  • Dividend yield
  • Dividend payout ratio
  • Retained earnings
  • Ex-dividend date

Sources for More Information

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