Cash Dividend

Cash dividends are cash payments made to the shareholders using profits generated by the company. .

Suppose a company, whose stock is priced at $10, declares a $0.25 cash dividend. If a stockholder owns 1000 shares of that company, he or she should receive $250 (via check or electronic transfer). However, since economic value is not created but merely transferred from the corporation to the shareholder, the loss in value of the company is reflected in the stock price which should dip by a corresponding $0.25 to $9.75 on ex-dividend date.

Sometimes a company may also pay a stock dividend instead of or in addition to a cash dividend.

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