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Cash Dividends (Definition) | Importance | Example - YouTube
Channel: WallStreetMojo
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today we have a topic with us is called
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cash dividend now there are different
sort of dividends are there you know
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people classify some classify as not
this one but as homemade dividends cash
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dividend shares based dividend
dividends different different sort of
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dividends are there we'll try and
discuss this in a detailed format first
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we will try and learn what is
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cash dividend
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see a cash dividend is basically a
return that is money that is paid to the
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shareholders for the investments that is
made in the share of the organization so
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it is basically considered as a reward
to the investors after considering the
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future prospects
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and know of the firm so the cash
dividend is paid out of the net profits
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of the firm by the firm during the
financial layer so it is not mandatory
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for the company to declare the dividend
and said the amount can be ploughed back
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for other development activities of the
company so however most of the
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established firm they declare dividend
on what we call as yearly basis or maybe
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once or in 2 years of keeping the
investor interested to the cash dividend
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is paid per share basis right so let's
understand the second part how the
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chronology will go for the cash dividend
see there are some important dates that
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one should know around the concept of
cash dividend first is called the
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declaration date now the day when the
board of directors of the company
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announces the approval for the dividend
payment second is called the holder of
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the record date see this is the record
date of the dividend and it is the day
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on which the eligible stockholders are
recognized the next is called the
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ex-dividend date the ex-dividend date is
whereby I know the investors are cut off
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from receiving dividend so it's are
basically normally closely around you
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can say two days prior to the holder of
the recorded so this date is very
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important because the new shareholders
are not as you will for evident from the
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date onwards now this is because the
stock price tends to fall due to the
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cash dividend payments now first there
is a cum dividend cum dividend date and
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now the time period when the dividend
has been declared by the firm but it
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has not been actually paid so the stock
trade come do it until the ex-student
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date second is called the payment date
now the date on which the actual
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dividend is paid to the stockholders of
record so in case of the interim
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dividend payout happens within closely
around 30 days you can say that 30 days
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is the payor take from the announcement
date of the dividend but for the final
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dividend payment has to be made within
30 days of the AGM general meeting okay
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this is the chronology now let's take an
example to understand this
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let us assume that you know there's a
company called PQR and they have
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substantially high profits for the
current financial year and they decided
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to distribute dividends to all of its
shareholders let's say Mr. C it owns a
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150 shares
there's bought at let's say at 15 per
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share
okay which makes us the total investment
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as 150*15 comes down to 2250 so if the firm declares a
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cash dividend of let's say 0.5 per share
Mr. C gets the total dividend as 150
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into 0.5 so the yielding on the same
will go as 75 divided by 2250 that
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comes down to 3.3% so let's
understand the functioning of dates
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through cash dividend an example let's
say on March
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28 figure company declares
paying the regular cash dividend of
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let's say 0.5 or share so it further
mentions that the holder of the record
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it shall be closely around April 27 okay
and the payment date will be 20th May or
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destroyed 20th me okay so the
ex-dividend date will be 25th of April
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this will be the ex-dividend date
indicating any new shoulders Herr on are
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not eligible for the dividend so it
covers up t plus 2 days right now 25th
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to 27 okay so the time frame between
March 28th and April 25th you know which
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is when the shares are trading come if
any new share holders joints till April 25th
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then they are eligible for the dividend
facility and May 20 is the payment of
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the date on which the pqr will dispatch
checks to the holder of the record so
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extending the above example you know the
cash dividend also has an inverse impact
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on the share price the stock price
generally fall host of identical
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addition since its fall in the equity
value of the business since you know the
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stock price will generally fall post
dividend declarations in its fall is in
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the equity value of the business now
let's say the price of the above stock
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was trading at $12 per share prior to
the event and it's and at the following
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date it falls around 11.5 assuming mr. C
retains the shares so there is no change
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in the nominal value any market value
the share price to the event is gonna be
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12 right into 150 shares
12 x 150 shares that's 1800 so
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the market value post the event is gonna
be 11.5 x 150 that's 175 so as
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calculated about the cash dividend
received was 75 and the value of the
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shares post is 1725 it's just a
difference that's 75 okay so the value
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of the share posed the event was 1725
and when combined it takes a total
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value of 1,800 that is 1725 + 75
which was the value of the shares prior
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to the event of the dividend so this
implies that the share value decreases
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roughly around the same amount as the
cash dividend now let's try and discuss
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the importance of cash dividend see
there are multiple factors which impacts
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the size in the timing of the dividend
especially in the aftermath of 2008 and
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2009 of the global financial crisis the
firm may have distribute cash written
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to maintain specific financial ratios or
manage any cyclic tendencies of the firm
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so let's assume a firm is selling an
air-conditioner so which have a high
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demand during the summer season so they
may have declare a dividend during the
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winter season that will help to maintain
the share price so it is during the
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winter season the demand for such
product dries up in the stock price can
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tank up so the firms in their maturity
stage they usually you know they pay
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regular dividend as compared to the fast
growing firm as they focused on
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reinvesting the cash for the growth of
the business now the companies do not
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always pay dividend in cash they may pay
in terms of stock dividends so the
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shareholders may also be given a choice
between the cash and the stock or permit
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the shareholders to buy additional
shares with this dividend so dividend
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yields displays the overall sentiments
of the market and the market expire
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experts observe the trend of the cash
trend of the cash dividend provided and
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dozen observations are made according
over it over a period of time including
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the period of distress
so the taxation laws of the respective
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country are to be considered for the
declaration like law keeps changing
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regularly and those companies are
required to order to them so generally
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the firms have to pay the DDD that's a
dividend distribution tax before
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distributing the same to the
stockholders so after discussing what's
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the meaning the chronology part the
example that we discussed and what
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exactly is the importance what exactly
is the importance we will finally now
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conclude on our topic C the aspect of
dividend is considered but double aged
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remember that on one hand providing the
cash dividend to the shareholder does
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boost the confidence of the investor now
on the flip side and involves the
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financial resources okay forgone which
could have been utilized for the future
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development activities of the firm so
the stock market also reacts accordingly
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initially it may point southwards to the
overall stock prices but a firm is known
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distributing cash to it so the stock
rise may remain stable or give rise to
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give a boost to the stock market and
thence the decision on dividend has to
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be made keeping in view the future
position of the firm and the industry
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expectation it has set up so one should
understand that the capital requirement
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and the investors expectations vary from
one industry to another and does the
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comparison of the cash dividends and the
dividend payout ratio should be compared
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amongst the similar company already
industry so that's it for this
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particular topic if you have learned and
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