Corporate actions: Dividend payments

COMPANIES often consider rewarding their shareholders in times of good performance through what is commonly known as dividends.

A dividend is a payment made by a company to reward its shareholders usually out of its profits. The purpose of paying dividends is to return wealth back to the shareholders of a company.

Dividends broadly come in two main forms, namely cash or shares. The most common types of dividends on our market include:

Cash dividend This is a payment made by a company out of its earnings to investors in the form of cash. It involves a movement of cash out of the business to the shareholders instead of the company using the money for operations.

Scrip dividend In terms of the ZSE listing rules, a scrip dividend comprises capitalisation shares which shareholders are afforded the right to elect to receive in lieu of cash dividends. A scrip dividend is an offer by a company to its shareholders for an option to receive the dividend payment either in the form of cash or additional shares.

Investors are afforded an opportunity to choose a payment option that best fit their personal circumstances.

Investor should however take note of the following key dates that are used in determining dividend settlements:

Dividend declaration date This is the date on which the company’s board approves the dividend issue

Record date This is the cut-off date established for the shareholder eligibility.

Ex-dividend date This is a date normally set a few days before the record date. Only shareholders who own the shares before this date are entitled to the dividend.

Cum-dividend Means that a shareholder is entitled to a dividend that has been declared, but not yet paid. The shares are said to be cum dividend till the ex-dividend date.

Dividend payout date This is the day on which the dividends are paid out to shareholders listed in the register of the company.