Dividends, in the normal use of the word, refers to that portion of earnings that paid to equity shareholders. The management of the business has three choices with respect to its net income. Firstly, income may be distributed in part or whole to the owners of the business. Secondly, earnings retained in the business for any use the management may decide on in the future. Thirdly, Income retained for one or more specific purposes and designated reserve for these ends.All these explained in dividend investing
a) Cash dividends:-The large majority of dividends are payable in cash. Cash dividends recommended by the board of directors and paid to the equity shareholders. Normally cash dividend paid out of the current year’s net profit and rest appropriated to the reserve and surplus account.
b)A stock dividend:-Stock dividend occurs when the board of directors authorizes the distribution of bonus shares to an existing shareholder. This has the effect of increasing the number of shares of the firm.