Corporations pay back their shareholders in two ways:
- By paying dividend
- By repurchasing stocks
Paying Dividends
A company’s dividend is usually set by the board of directors. They decide how to pay dividends to their shareholders. Dividends can be paid in two ways:
- Dividends can be paid in cash. For example, a company announced that all shareholders who are registered on a particular date are entitled to receive a quarterly dividend of $5.0 per share. Some corporations pay dividends semi-annually, and some annually.
- Dividends can also be paid in the form of shares. For example, a company announced that all shareholders who are registered on a particular date are entitled to receive an annual stock dividend of 3%. That is, each shareholder will receive three extra shares for every 100 shares they owned.
Repurchasing Stocks
Sometimes companies, instead of paying dividends, repurchase their stocks. Shareholders are free to accept or reject this offer, and they can sell some or all of the shares they hold. The shares repurchased by the company can be resold when the company needs money.