There are never guarantees — we can screen stocks to try to identify those with high dividend yields that are expected to be well supported by cash flow. But before making any investment you should do your own research to form your own opinion about a company’s ability to remain competitive over the long term, while also supporting its dividend. Mutual funds or exchange-traded funds provide diversification and lower risk for a fee, but some investors still want to hold individual stocks. For income seekers holding individual stocks, diversification among companies, sectors and industries can provide some protection from dividend cuts and the plunging share prices that precede or result from them. This article is geared toward the last group — investors seeking high current income with a check for safety.
- Main Street Capital raised its monthly dividend from $0.235 per share to $0.24 per share in the first quarter of 2024, yielding a dividend raise of 2%.
- So the annualized regular dividend is two dollars a share, which would make for a regular dividend yield of 2.81%, based on the closing price of $71.09 on Dec. 26.
- Meanwhile, the company has closed several acquisitions this year (a leading global container leasing company and three data center platforms), putting it in a strong position to deliver double-digit growth again in 2024.
- The new shares have half the par value of the original shares, but now the shareholder owns twice as many.
For example, the REIT recently unveiled that it signed two 63-month early renewal leases for warehouse and distribution space with a tenant. The rental rate on the renewal leases was a staggering 49.8% above the prior term’s expiring rental rate. Meanwhile, the rental rate will escalate by 3% annually for the lease term. The BDC reported robust results all throughout 2023 and continued to comfortably cover its dividend with net investment income in the last quarter.
In addition, corporations use dividends as a marketing tool to remind investors that their stock is a profit generator. As the company has declared a 10% stock dividend, it would be accounted just like a cash dividend. As a stock dividend represents an increase in common stock without any receipt of cash, it is recognized by debiting retained earnings and crediting common stock. The amount at which retained earnings is debited depends on the level of stock dividend, i.e. whether is a small stock dividend or a large stock dividend. Stock dividends (also called bonus shares) refer to issuance of shares of common stock by a company to its existing shareholders in the proportion of their shareholding without any receipt of cash.
AccountingTools
If a 5-for-1 split occurs, shareholders receive 5 new shares for each of the original shares they owned, and the new par value results in one-fifth of the original par value per share. To illustrate how these three dates relate to an actual situation, assume the board
of directors of the Allen Corporation declared a cash dividend on 2010 May 5, (date
of declaration). The cash dividend declared is USD 1.25 per share to stockholders of
record on 2010 July 1, (date of record), payable on 2010 July 10, (date of payment). Because financial transactions occur on both the date of declaration (a liability is
incurred) and on the date of payment (cash is paid), journal entries record the
transactions on both of these dates. Dividends are payments that investors receive from a company in relation to the purchase of stock.
However, it is possible that the dividend declared is not enough to pay the entire amount per preferred share that is guaranteed—before common stockholders receive dividends. In that case, the amount declared is divided by the number of preferred shares. A stock dividend is considered small if the shares issued are less than 25% of the total value of shares outstanding before the dividend.
In year six, preferred stockholders are not owed any dividends in arrears. Of the $375,000 that is declared, they receive the $75,000 due to them in year six. Paying a combined fixed plus special dividend is not uncommon among U.S. energy producers during this period of strong cash flow and an emphasis on prudent production and returning cash to shareholders. If a dividend payout is lean, an investor can instead sell shares to generate the cash they need. In either case, the combination of the value of an investment in the company and the cash they hold will remain the same.
And in some states, companies can declare
dividends from current earnings despite an accumulated deficit. The financial
advisability of declaring a dividend depends on the cash position of the corporation. This is the amount of stock dividends that will be issued to stock holders. Between the time of the company’s declaration and the actual issuing of https://personal-accounting.org/common-inventory-dividend-distributable/ dividends, the company would list $7,500 as stock dividend distributable. In year five, preferred stockholders must receive $120,000 ($45,000 in arrears and $75,000 for year five) before common shareholders receive anything. Since $200,000 is declared, preferred stockholders receive $120,000 of it and common shareholders receive the remaining $80,000.
Their high-yielding dividends will be the gift that keeps on giving.
The total stockholders’ equity on the company’s balance sheet before and after the split remain the same. Stock investors are typically driven by two factors—a desire to earn income in the form of dividends and a desire to benefit from the growth in the value of their investment. Members of a corporation’s board of directors understand the need to provide investors with a periodic return, and as a result, often declare dividends up to four times per year. However, companies can declare dividends whenever they want and are not limited in the number of annual declarations. They are not considered expenses, and they are not reported on the income statement. They are a distribution of the net income of a company and are not a cost of business operations.
Cash Dividends
The LLM portfolio included 79 portfolio companies and was valued at $2.2 billion. Main Street Capital is an internally-managed BDC, which had its IPO back in 2017 and which has earned a reputation as a reliable dividend payer over time. Main Street Capital primarily pursues yield opportunities in the lower middle market which has been abandoned by financial institutions following the Great Recession in the 2000s.
Small Stock Dividends
For instance, the
quarterly dividend could have been stated as USD 2 per share. When they declare a
cash dividend, some companies debit a Dividends account instead of Retained
Earnings. (Both methods are acceptable.) The Dividends account is then closed to
Retained Earnings at the end of the fiscal year. For example, if a company declares a 15 percent stock dividend, you would divide 15 by 100 to get 0.15. The 8 slices of a typical pizza represent the shares of stock and the $2 cost per share is the par value of the stock.
The Nature and Purposes of Dividends
A high-value dividend declaration can indicate that the company is doing well and has generated good profits. But it can also indicate that the company does not have suitable projects to generate better returns in the future. Therefore, it is utilizing its cash to pay shareholders instead of reinvesting it into growth. For the company, a stock dividend is a pain-free way to issue dividends without depleting its cash reserves.
Why Main Street Capital?
After the distribution, the total stockholders’ equity remains the same as it was prior to the distribution. The amounts within the accounts are merely shifted from the earned capital account (Retained Earnings) to the contributed capital accounts (Common Stock and Additional Paid-in Capital). The difference is the 3,000 additional shares of the stock dividend distribution. The company still has the same total value of assets, so its value does not change at the time a stock distribution occurs. The increase in the number of outstanding shares does not dilute the value of the shares held by the existing shareholders. The market value of the original shares plus the newly issued shares is the same as the market value of the original shares before the stock dividend.
In either case, the company needs the proper journal entry for the stock dividend both at the declaration date and distribution date. The board of directors of a corporation possesses sole power to declare dividends. The legality of a dividend generally depends on the amount of retained earnings
available for dividends – not on the net income of any one period. Firms can pay
dividends in periods in which they incurred losses, provided retained earnings and
the cash position justify the dividend.