Dividend payouts are one of the two usual options open to an investor when it comes to dividends generated on investment holdings. The dividend payout is the generated cash that a corporation issued to a shareholder as a dividend on the total number of shares. Depending on the structure of the stock issue, the dividend payout may involve all the net profit generated during the fiscal year, or be a portion of the net profit.
As an alternative to a dividend payout, shareholders may choose to take advantage of what is known as a dividend reinvestment. This option often allows the shareholder to place the dividend payment into a special account that is used to buy additional shares of stock when and as they become available. Using this option instead of a dividend payout allows the investor to incrementally increase his or her interest in the company.
With the dividend payout, the shareholder is free to make use of the cash in any way he or she deems appropriate. All or part of the payout may be used to secure more shares of the company, or buy into other types of investments. While in years past the dividend payout was issued in the form of checks to the shareholders, it has become increasingly common for investors to make use of electronic transfers to a bank account in order to securely receive the payout. In both scenarios, the corporation will provide documentation that details how the dividend payout was calculated and the issue date for the payout.
Shareholders are not locked into one particular payment option. It is possible for the shareholder to opt for a dividend payout for several periods and then choose to switch to a dividend reinvestment. In most cases, the procedure to change the mode of payment of dividends is defined in the terms and conditions that govern the policies of the company. While these procedures may vary somewhat from one corporation to the next, just about all companies require a minimum amount of notice to change the payment option. This often must occur at some point before the end of the current dividend period, or at least well before payments are issued for the period.
