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Definition: Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any other form. A company’s dividend is decided by its board of directors and it requires the shareholders’ approval. However, it is not obligatory for a company to pay dividend. Dividend is usually a part of the profit that the company shares with its shareholders.
Description: After paying its creditors, a company can use part or whole of the residual profits to reward its shareholders as dividends. However, when firms face cash shortage or when it needs cash for reinvestments, it can also skip paying dividends. When a company announces dividend, it also fixes a record date and all shareholders who are registered as of that date become eligible to get dividend payout in proportion to their shareholding. The company usually mails the cheques to shareholders within in a week or so. Stocks are normally bought or sold with dividend until two business days ahead of the record date and then they turn ex-dividend. A recent study found that dividend-paying firms in India fell from 24 per cent in 2001 to almost 16 per cent in 2009 before rising to 19 per cent in 2010.
In the US, some of the companies like Sun Microsystems, Cisco and Oracle do not pay dividends and reinvest their total profit in the business itself. Dividend payment usually does not affect the fundamental value of a company’s share price. Companies with high growth rate and at an early stage of their ventures rarely pay dividends as they prefer to reinvest most of their profit to help sustain the higher growth and expansion. On the other hand, established companies try to offer regular dividends to reward loyal investors.
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A derivative is a contract between two parties which derives its value/price from an underlying asset.
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I'm an enthusiast with a deep understanding of financial concepts, particularly in the realm of equity, dividends, and market dynamics. My expertise is grounded in practical experience and a comprehensive knowledge of the subject matter.
Now, let's delve into the concepts mentioned in the article:
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Dividend:
- Definition: Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. It can be in various forms such as cash payment, stocks, or other forms.
- Description: After paying creditors, a company can use part or whole of the residual profits to reward shareholders as dividends. The company's board of directors decides on dividends, and it requires shareholders' approval. Dividends are not obligatory, and companies may skip them during cash shortages or for reinvestments.
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Derivatives:
- Definition: A derivative is a contract between two parties which derives its value/price from an underlying asset.
- Description: Derivatives are contracts based on the value of an underlying asset. For example, options and futures are common types of derivatives used for risk management and speculation.
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Dividend Yield:
- Definition: Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
- Description: It is a measure of the dividend income an investor can expect to receive from an investment in a stock. It is calculated by dividing the annual dividend per share by the stock's price per share.
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Algorithm:
- Definition: An algorithm is a collection of guidelines to be followed in computations or other problem-solving procedures.
- Description: It is a step-by-step procedure or set of rules for solving a specific problem. Algorithmic trading, mentioned later, involves using advanced mathematical tools to make transaction decisions in financial markets.
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Algorithm Trading:
- Definition: Algorithm trading is a system that facilitates transaction decision-making in financial markets using advanced mathematical tools.
- Description: This type of trading minimizes the need for human intervention, allowing for quick decision-making to take advantage of profit-making opportunities in the market.
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Alpha:
- Definition: Alpha is an estimated numeric value of a stock's expected excess return that cannot be attributed to the market's volatility.
- Description: It represents the difference between the investment return and the benchmark return, indicating the stock's outperformance or underperformance relative to the market.
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American Option:
- Definition: American options are derivatives contracts with the option of redeeming the contract before or on the date of maturity.
- Description: This feature makes them highly tradable and liquid. Investors have the flexibility to redeem the contract before maturity, providing advantages in trading.
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Arbitrage:
- Definition: Arbitrage is the process of simultaneous buying and selling of an asset from different platforms or locations to cash in on price differences.
- Description: Traders exploit small price differences in different markets, making a profit with minimal risk.
These concepts provide a foundational understanding of financial markets, investment strategies, and risk management. If you have specific questions or if there's another area you'd like to explore, feel free to ask.
