Firms pay dividends to their shareholders to return the company's earnings to investors. Dividends can provide a regular source of revenue for investors, but not all firms pay dividends according to the same schedule. Investors should understand the frequencies with which dividends can be paid.
Quarterly
Many firms pay out dividends on a quarterly basis. A financial quarter is one quarter of the fiscal year -- that is, a three-month period. Shareholders of firms paying quarterly dividends can expect to receive a dividend payment once every three months. Quarterly dividend payments provide investors with a regular source of income.
Annually
Many firms, including giant corporations such as McDonald's and Disney, pay their dividends on an annual basis. Although shareholders often prefer to receive their dividends more frequently, there are financial incentives for some firms to offer dividends on an annual basis. By reducing the frequency of dividend payments, the company reduces the costs associated with cutting and distributing checks. If a company has a lot of shareholders who hold a small number of shares, the costs of paying dividends can eat away at their value.
Other Intervals
A dividend can be declared anytime, so long as the firm has the retained earnings to pay for it. The retained earnings are the profits a firm has generated. These can be returned to shareholders only when the board of directors decides to do so. In addition to its regular dividend payments, a firm can, at the discretion of the board of directors, make dividend payments at other intervals. For example, a company might decide to do this if it has generated higher than expected revenues.
When Dividends Are Not Paid
Although many firms pay out dividends on a regular basis, there is no obligation to do so. Firms that are losing money do not have retained earnings, and, as a result, they cannot pay dividends to their shareholders. In other instances, the board of directors may opt to reinvest the retained earnings instead of paying dividends to shareholders. By reinvesting earnings, a firm can grow and create more value for shareholders over the long term. It is not uncommon for firms to begin paying dividends only after they have matured and reached a sustainable level of profit.
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