Understand today's complex economic terms, not everyone can do it. Nevertheless, there are concepts that warm the soul of even the most financially savvy inhabitants. For example, a dividend. What is this term, what is its definition, purpose and essence - all this we will consider in this article.
Where do dividends come from?
From an economic point of view, dividends are part of the company's profits paid to shareholders after all mandatory payments and taxes have been paid. And here a new question arises: "Who is the shareholder?" A person or organization that has invested their own funds in the company's shares in order to acquire a certain income from the growth of their market value, that is, only a shareholder can count on the return on the funds invested in the development of the enterprise.
Buying Shares - Reason for Earning Income
Now let's deal with stocks. They are ordinary and privileged. As a rule, when a company arises, the amount of the authorized (or share) capital is fixed, which is a source of financing all expenses of the organization. The company issues ordinary shares of a certain nominal value in the amount of this capital. Their total value should be equal to the amount of the authorized capital. So, in order to receive dividends, it is necessary to become the owner of shares, in other words, to buy them.
The right of the company in deciding the direction of profit
But not everything is so simple in the concept of "dividend". It is already clear that this is a certain share of the net income of a joint-stock company distributed between its shareholders holding shares. However, to pay this type of income or not to pay - the organization decides, or rather, the general meeting of shareholders, since the payment of dividends is not an obligation, but the right of the company. It is legally established that a company may declare dividends on its own shares at the end of the year, but is not required to do so. Today, only a quarter of all Russian joint-stock companies declare and pay dividends.
Optimal balance in profit distribution
Any company develops and operates in order to maximize profits. Therefore, it seeks to invest in the further development of the lion's share of revenues received for the year. However, for a long time it is impossible not to pay dividends to your investors: with the fall in the price of the stock, the investment attractiveness of the company will invariably fall. And this will lead to a decrease in overall profitability. Therefore, companies are looking for the most optimal proportions in the distribution of profits for further reinvestment and accrual of dividends.
In world practice, the activities of public companies have the following relationship: 8-15% of the profits goes to dividends, and everything else remains at the disposal of the organization and is spent in accordance with further development: expansion of production, construction of new facilities or technical re-equipment of existing capacities. I must say that Russian companies do not often indulge their shareholders with such payments, and the percentage of dividends is small.
Who decides to pay dividends?
In order to avoid possible disagreements between shareholders, the law establishes the rules for determining the size and declaration of dividends, which must be observed in the most careful way:
• the meeting of shareholders issues a resolution on the payment of dividends;
• the board of directors, acting in the interests of all groups of shareholders, determines the amount of dividends in the current year and recommends it to the general meeting;
• shareholders do not have the right to establish a different amount of payments that is more attractive from their point of view (they either approve the proposal of the board of directors or refuse to declare dividends).
The amount of dividends in the Russian Federation is set in rubles per share minus withholding tax.
The most important aspects of declaring dividends
Declared dividend - what is it? Having decided on the size, the meeting of shareholders makes a decision, in other words, declares dividends, informing the participants of their size, form and terms of payment.
The form of payment is usually set in monetary units. However, some companies practice other options, for example, property ones. In this case, this fact must be provided for by the charter of the company.
The time frame is legally established during which the company is obliged to transfer dividends to its shareholders. According to the current legislation, the term for the payment of dividends can be determined by the charter of the company or the meeting of shareholders. If for some reason this did not happen, then, in accordance with the law, shareholders must receive the income due to them within 60 days from the date of the declaration of dividends.
Stock calendar: day X
So, dividends can only be received by shareholders who have acquired (documenting the transfer of ownership in the depository or registry) shares before a certain date on which a list of persons with the right to receive income is drawn up. This day is determined by the board of directors when it decides to convene a meeting of shareholders. The company provides information on this date to shareholders within 5 days from the date of its establishment. It is necessarily published on the official websites of companies.
On the same day, the company draws up a register of persons entitled to participate in the meeting of shareholders. This is another document. Shares are used to circulate, that is, transfer from one owner to another, and on the indicated day, in accordance with the list drawn up, one of the shareholders will be entitled to participate in the meeting of shareholders, while others will receive dividends. When selling securities after the announcement of the date of registration of the register of persons entitled to receive dividends, the seller who sold these securities, but included in this list (since the shares were his property at the time of compiling the document), retains this right. Acquisition of shares after compiling the list does not give the new owner the opportunity to receive dividends for the past financial year. Conversely, when acquiring shares before the date of listing, their owner falls into the list of persons entitled to receive dividend income for the entire past period, even if the purchase was made a few days before the list was drawn up. Accordingly, the seller of shares cannot receive dividends until the day the list is compiled, even if he was the owner of the shares all year and sold them one hour before the registration of the register. In this case, the duration of ownership of the securities does not matter, it is only important who owns them on the indicated day.
Procedure for familiarizing a shareholder with a list
The law provides for the procedure for familiarizing shareholders with the list of names that are entitled to receive dividends:
• the shareholder must submit to the company a request for familiarization with this document, and also has the right to demand a copy of it;
• the organization (within 5 days from the date of presentation of the application) provides the shareholder with the opportunity to familiarize themselves with the list on the company’s territory for free, and, upon request, can transfer to the shareholder a copy of this document, the cost of copying of which should not exceed the cost of its production.
Dividend non-payment: causes and effects
Dividends can be paid to shareholders by postal order or by transfer to a bank account. It is possible to receive them in person or through another person by proxy issued by a notary.
Failure by a company to fulfill obligations with respect to its shareholders regarding non-payment of dividends is punishable quite strictly. The shareholder has the right to appeal to the court with a claim for recovery from the organization of the amount of income and interest due to him for the resulting period of delay. Interest in this case is accrued for the period of delay in payment, from the date following the day of the end of the specified payment period.
If the shareholder is guilty of non-payment of dividends (for example, he did not provide the bank details of the account to which the company should transfer), then there can be no question of a lawsuit.
How to get information about dividends?
Today, all public companies are required to provide financial and operational information about their core business. Therefore, on the official websites of organizations you can always find comprehensive information about declared dividends on shares, their size, form and terms of payment.
Dividend yield of Russian companies
The main indicator of the effectiveness of the concept under consideration is the dividend yield, which is calculated as a percentage, as the ratio of profit per share to its market value. It should be noted that Russian companies practice paying small dividends on shares, although issuers have recently appeared who take care of all groups of their shareholders - minority (small) and majority (large).
The dividend yield of Russian companies averages around 5-8%. The leading position in this indicator for 2013 is occupied by Bashneft dividends: for ordinary shares it amounted to 17.82%, for preferred shares - 12.93%. The following domestic companies have a profit of securities in 2013 exceeding 10%: MGTS OJSC, Acron OJSC, E.ON Russia OJSC. Bashneft’s dividends, which have reached world-class profitability, can increase the company's investment attractiveness and significantly increase its shareholder value. What about other AOs?
Gazprom’s dividends in 2013 are much lower - their yield amounted to 5.2%. Nevertheless, the company pays the due amounts to its shareholders from year to year. The market value of securities is growing steadily, the financial condition of AO is more than stable. According to the forecasts of exchange analysts, Gazprom’s dividends will grow this year, reaching the level of 2011.
Dividends and taxation
Like any type of income, a dividend received by a shareholder in a company is tax deductible. The tax rate, in accordance with the Tax Code, is determined for each category of taxpayers separately.
For citizens and legal entities permanently residing in the country and being tax residents of the Russian Federation, the tax rate on income in the form of dividends is set at 9%. Citizens who do not have the above status, the tax on such income is calculated at a rate of 30%. For legal entities that do not have the status of a tax resident of the Russian Federation, the tax rate is 15%.
As a rule, Russian public companies are legally recognized as tax agents and pay dividends to the founder and shareholders, having already withheld the due amount and transferring it to the budget, so the shareholder does not need to take any action.
Dividend accounting
The current chart of accounts provides a clear accounting system for such a source as dividends. Account 75 "Settlements with the founders" accumulates all the information about the accrual and payment of such income. With retained earnings, cash, payroll, personal income tax and other accounts, the balance account is offset. This is where dividends are taken into account. The transactions reflecting the accrual, dynamics and payment of this kind of income are as follows:
• Dt 84 Kt 75/2 - for the total amount of profit aimed at paying dividends.
• Dt 75/2 Kt 70 - reflects the amount of accrued income to the shareholder-employees of the company.
• Dt 75/2 Kt 68 - withheld from personal income tax from dividends of shareholders not in the state of the company.
• Dt 75/2 Kt 50, 51 - payment of profit in cash from the cash desk or transfer from the current (settlement) account.
• Dt 75/2 Kt 91 - the nominal value of the bill is reflected if payment is made by a bill of exchange of a third party company.
• Dt 91 Kt 58/2 - actual expenses for the purchase of a bill indicated on account 58/2.
• Dt 91 (99) Kt 99 (91) - financial result (profit or loss) from the disposal of the bill.
• Dt 75/2 Kt 90 (91) - the sale value of goods or other property in the amount of income due is reflected if the charter provides for property settlements on dividends.
So, we have somewhat clarified the essence of the economic concept of “dividend” (what is it, what are the advantages of receiving it) and we hope that this article will help to understand the “wilds” of Russian business.