Common Stock Dividends in Business Example for Free

There are two ways that investors can earn a profit by buying stock which is from buying the stock low and selling it higher, and by receiving dividends. Most of the companies especially small or growing companies do not pay a dividend while the large profitable companies do by necessity because there is a limit to how large a company can grow and so the only way to maintain its stock price is by paying a dividend.

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1.1 Definition of Common stock dividends

A common stock dividend is the dividend paid to common stock owners from the profits of the company. Like other dividends, the payout is in the form of cash or other like stock. The law may regulate the size of the common stock dividend particularly when the payout is a cash distribution tantamount to liquidation. Such cash dividends may serve the intent of defrauding creditors.

1.2 Common types of dividends

There are two common types of dividends. Cash dividends are dividends that are paid in cash and are the most common type of dividend. Stock dividends are paid in extra shares of stock instead of cash. Whether the dividend is paid as cash or as stock, the payment of a dividend reduces the price per share of the company. If the dividend is paid as cash, then the company will have less cash, reducing its value, and its value per share. If the dividend is paid as stock, then there are more shares outstanding, but the value of the company has not increased and the company’s value per share is reduced.

1.3 Advantages

There are several advantages to stocks paying a dividend over those that don’t. Dividend-paying stocks provide a more certain income than what price appreciation alone offers. When the stock market declines, holders of dividend-paying stocks still receive an income, and the dividend helps to maintain the stock price even in a down market. And, often, the dividend plus the capital gains of a dividend-paying stock is greater than the capital gains of many stocks that do not pay a dividend.

1.4 Should the Company Pay a Dividend?

Dividend that will be paid depends on the profitability of the firm. The board of directors is the person who have to decides when a stock dividend will be paid and how much. The board of directors will consider the company’s financial position, both now and in the future, and the opportunity costs of paying a dividend. If the company can use the money to grow faster, then a dividend probably will not be paid. But if a company is both large and profitable, then it could pay some portion of its earnings as a dividend, since it becomes more difficult for a large company to grow ever larger. Besides size, the largest factor in considering a dividend payment is the company’s common earnings per share (EPS), which is the after-tax income of the company minus the dividends paid to preferred shareholders divided by the number of common shares outstanding. If the common earnings per share is high and likely to remain high, and if the company is too large to grow much larger, then the board of directors will probably decide to pay a dividend. Earnings Per Share = Net Profit – Preferred Dividends Number of Outstanding Common Stock Shares

How the Dividend is Paid?

When the board of directors declares a dividend, which is on the declaration date, they also specify the date of record and the payment date. The date of record is the date when a stockholder must be a registered owner of the stock a holder of record to receive the dividend. The payment date or payable date is when payment is actually made basically about three weeks after the date of record. Because it takes 3 business days to settle a stock trade, the date of record determines the ex-dividend date, which is 3 business days earlier. The ex-dividend date is the 1st day in which the stock trades without the recently declared dividend. In newspaper listings, a stock is marked with an x to indicate that it is ex-dividend. An investor who buys the stock during the ex-dividend period will not be entitled to the recently declared dividend. The price of the stock increases steadily by the amount of the dividend until the date of record, then drops by the same amount on the ex-dividend date. This happens because investors are willing to pay more if they are expecting to receive the dividend, which offsets the increased price. Moreover, open buy and stop sell orders are also usually reduced by the dividend amount on the ex-dividend date.

Issue: Realty Income Increases Common Stock Monthly Dividend

2.1 Background of the Realty Income Corporation

Realty Income, The Monthly Dividend Company(R), is a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. The primary goal is to provide dependable monthly income to the shareholders by acquiring and owning retail real estate that generates dependable lease revenue which will pass on to the shareholders in the form of monthly dividends. To date the Company has declared 483 consecutive common stock monthly dividends throughout its 41-year operating history and increased the dividend 59 times since Realty Income’s listing on the New York Stock Exchange in 1994. The monthly income is supported by the cash flow from over 2,300 properties owned under long-term lease agreements with regional and national retail chains and other commercial enterprises. The Company is an active buyer of net-leased properties nationwide. Currently the annualized dividend rate is $1.72725 per share.

2.2 Summary of the issue

The real issue is Realty Income Increases Common Stock Monthly Dividend. The Realty Income Corporation announced that its Board of Directors has declared an increase in the Company’s common stock monthly cash dividend to $0.1439375 per share from $0.143625 per share. The dividend is payable on 15th October 2010 to shareholders of record as of 1st October 2010. This is the 52nd consecutive quarterly increase and the 59th dividend increase since Realty Income went public in 1994. The new monthly dividend amount represents an annualized dividend amount of $1.72725 per share as compared to the previous annualized dividend amount of $1.7235 per share. The Company continues its long-term policy of declaring and paying dividends on a monthly, rather than on a quarterly basis.

According to Tom A. Lewis, Chief Executive Officer of Realty Income commented the operations allow them to once again increase the amount of the dividend pay to the shareholders. The company will have made 483 consecutive monthly dividend payments.

2.3 Forward-Looking Statements

Forward-looking statements involve known and unknown risks, which may cause the Company’s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, the availability of capital to finance planned growth, property acquisitions and the timing of these acquisitions, charges for property impairments, the outcome of any legal proceedings to which the Company is a party, and the profitability of the Company’s subsidiary, Crest Net Lease, as described in the Company’s filings with the Securities and Exchange Commission. Consequently, forward-looking statements should be regarded solely as reflections of the Company’s current operating plans and estimates.

2.4 The market for Retail Real Estate Expansion Capital

The freestanding retail real estate market is vast. According to F.W. Dodge, an independent real estate consultant, there is more than 5.6 billion square feet of this type of real estate in the United States. The ownership of these freestanding properties varies depending on the size and type of retail property. There are companies that specialize in owning small convenience stores or restaurants and there are those that only want to own the “big box” properties.

With the tremendous amount of freestanding retail real estate that exists, the competitive advantage is derived from the fact that its have elected to specialize. The acquisition and ownership focus is on the highly specific freestanding retail market niche of middle and upper market retailers who provide goods and services that consumers use every day. Typically, many middle market retail chains have limited access to the public capital markets so executing a sale/leaseback transaction with Realty Income provides them with immediate access to capital. These are often the retailers who could benefit the most from outsourcing the ownership of their real estate, generating capital to fuel their business growth and enhance their credit profile or borrowing capacities.

Some of the retail chains who have used this type of capital including National Tire & Battery (parts and service), Children’s World (child daycare center), WaWa (convenience stores), and Pizza Hut (fast food restaurants).

The experience in providing sale-leaseback financing for middle market retail chains spans more than 41 years and experts at uncovering the industries and retailers that would benefit the most from past experience. The transaction process is rapid, efficient and responsive. It is no wonder that 118 retail chains in 32 different industries do business with Realty Income.

Implications of the issue

Important demographic changes, known as “the aging of America,” are taking place. The changes could have an impact on the type of investments people will need over the next 10 to 20 years. History and experience have shown that the market for certain kinds of investments have been directly correlated to demographic trends.

Goals were established for achieving lease revenue and geographic diversification that set the standard for Realty Income’s real estate acquisitions during year 2010. The Company’s retail properties were diversified across 49 states and generated lease revenue from 118 separate retail chains in 32 different retail industries.

The main focus is providing dependable monthly income especially to majority of retired people who are receive more than 70% of their income from investments. Currently more than 34 million people are of retirement age and rely on some type of investment income. In the same time give beneficial to retirement people who need fund for their whole life.

From the other side, it also will be effect for certain number of people who are exit in the workplace and need to replace their salaries with investment income. The dependable income will be important to them in maintaining an existing lifestyle.

Furthermore, the shareholders and investors of The Monthly Dividend Company(R) receive dependable monthly income that can be used to improve and enrich their quality of life.

Realty Income have paid monthly dividends throughout 41 year operating history and have regularly increase the amount of the monthly dividend since becoming a public company in 1994. Currently the annualized dividend rate is $1.72725 per share. From the previous good performance and achievement of Realty Income, Realty Income plans to implement a direct stock purchase and dividend reinvestment plan during this year.

Realty Income is optimistic about the Company’s operations and performance for 2010 to continue to produce positive results in a soft economy. The balance sheet is among the strongest in the industry and portfolio of properties continues to perform well.

Over the long term it will probably experience a wide variety of economic conditions. The company continues to believe that the objective should be to operate the Company in a manner that allows them to deliver a conservative investment and consistent monthly dividends, regardless of the economic situation. While it is not immune to the ebb and flow of the economy, we believe we have positioned the company to continue to achieve this objective.

Business plan for the company in becoming year is to pay 12 monthly dividends and also raise the dividend. Furthermore to maintain a conservative balance sheet and maintain high portfolio occupancy rates. Next is to acquire additional properties and tell more people about the Monthly Dividend Company.

3.1 Three reasons why many investors own shares of The Monthly Dividend Company:

Dependable monthly income like clockwork The Company paid monthly distributions for 41 years. As of September 30, 2010 it have paid 482 dividends and over $1.8 Billion in dividends paid. Security Investors obtain the security of owning a stock backed by real estate assets that are unencumbered by mortgage debt and managed by a team of professionals dedicated to conservative financial and real estate acquisition strategies. Potential for long-term dividend growth Since becoming a public company listed on the New York Stock Exchange in 1994, it have increased the amount of the dividend 59 times. From 1994 to September 2010, the annualized dividend rate rose from $0.90 per share to $1.72725 per share, or 92%.

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Common Stock Dividends In Business Example For Free. (2017, Jun 26). Retrieved November 27, 2022 , from
https://studydriver.com/an-introduction-to-common-stock-dividends-in-business-finance-essay/

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