Info 1: dividends payout definition
Info 2: how dividends payout works
Info 3: dividends payout vs interest payment
Info 4: example of dividend payout
Opening information:
Dividends payout sentence breaks into two words dividends and payout. Dividends mean the amount of money that is paid in dividing basics, payout means a payment to someone. A dividend payout means a payment to someone as dividend money.
So now let’s have a look at what is a dividend payout, how a dividend payout works in the public market among public Corporations, and what is the difference between a dividend payout and interest payment, finally one brief example of a dividend payout.
Info 1: dividends payout definition
Hilop is a textile Industry that produces 234 varieties of dresses for men and women over the age of 18 to 30.
This business has made 12 billion dollars worldwide every year, and this year it’s only made 11 billion dollars and they also didn’t find any great way to grow their business on any amount of level.
Hilop company only used the 8 billion to grow and improve the future of their business, once they use more than 8 billion dollars, then such an amount may encounter losses in the future time.
So they decided to pay the remaining profits of 3 billion to all Shares holders of the business equally based on each’s holdings.
Paying or distributing 3 billion dollars to all owners of the Hilop business would create the belief that the Hilop textile Industry is using the money efficiently without any loss.
Here the payment or distribution of 3 billion to their hilop business holders are what elaborate as a dividends payout. So let’s dive into how the dividend payout is identified in the public market.
Info 2: how dividends payout works
The dividends payout doesn’t represent any of the specific objects or things instead they are payments that are made to their shareholders from the earnings or profits of the specific business.
Therefore any business that made payments from the net income of the business to any amount of people Investors, then such payment of money are considered as dividend payout.
Suppose the net income is used to make a payment of interest for debts, bonds, bank loans, third-party payments extra… Then such paid amount of expenses are not illustrated as a dividends payout.
So whenever any of the public firms make huge amounts of awakenings, doesn’t mean they are payout for dividends, business such earnings are also used to grow that organization.
Before the distribution of profits happens among all Shares holders of the business the board must acknowledge for distribute the money to the Industry owners, if the board members of one Industry or organization allow or agree to payment for the business owners, then such payment are not made as dividends payout.
Moreover, dividend payout is not a must and is agreed payment on each quarter or yearly basis for the stake holders, where public institutions are allowed to use the profits of the business as much as possible to grow such business and increase the equity of such Industry owners.
Whenever one company doesn’t have any ways to use the profits of the Industry for any more growth and expansion in the future, such money is allowed to be distributed among all the shareholders of the one business. That distribution is what demonstrates a dividends payout.
Even if the CEO had no way to grow the business, that CEO must be approved by a majority of the board members to distribute the profits as dividends payout.
Most people confuse the dividends payout and interest payments, so let’s jump into the key difference in it anyway.
Info 3: dividends payment vs interest payment
The difference between dividend payment and interest payment is, that dividend payments are paid to their shareholders from the profits of the business when there is no way for growth.
On the other side, interest payments are not paid for Shares holders or owners of any Industry, despite the payments for debts of the business even if such organizations go into losses.
To make you more clear about the dividends payment, let’s look into one brief example below.
Info 4: example of dividend payment
Say company K is the one which made 23 million dollars in the
revenue of the company. Among the 23 million dollars 12 million dollars are paid and distributed to the owners of such businesses.
Next the 2 million dollars paid as debt amount, they are remaining with an amount of 9 million dollars in the net income of Company K.
Here the 12 million dollars in profits distribution is what is considered a dividends payment and 2 million dollars as an interest payment.