Dividends refer to the portion of a company’s profits distributed regularly to shareholders, proportionally based on their shareholding or capital contribution. Bonuses (or bonus dividends), by contrast, are residual profits distributed to shareholders after dividend payments—allocated according to shareholding proportion—and depend entirely on the company’s operating performance; they carry no fixed amount. Together, dividends and bonuses constitute what is collectively termed ‘dividends’ (or ‘distributions’), representing a fundamental objective for investors in listed companies. Any direct payment made by a company to its shareholders may be considered part of its dividend policy. In distributing dividends and bonuses, preferred shareholders first receive distributions at a stipulated dividend rate. Thereafter, ordinary shareholders receive dividends from the remaining profits; their dividend rate is not necessarily fixed. If, after dividend distribution, the listed company still has distributable profits remaining, it may—depending on circumstances—distribute bonuses to ordinary shareholders. Types of Dividends The most common type is the cash dividend, paid in cash and typically distributed quarterly. Another type is the stock dividend, paid in additional shares of stock. This is not a true dividend in the strict sense, as no cash leaves the company. Instead, stock dividends increase the number of shares outstanding; because each share now represents a smaller proportional claim on the company’s future cash flows, the stock price declines accordingly. (More precisely, the price is adjusted downward—a process formally known as ‘ex-dividend’ or ‘ex-rights’ adjustment.) Dividend Payment Procedure 1. Declaration Date: On January 15 (the declaration date), the board of directors resolves to pay a $1.00-per-share dividend to all shareholders of record as of January 30 (the record date), with payment scheduled for February 16.

Stock Knowledge — Where Do Dividends and Bonuses Come From?

Dividends represent a portion of a listed company’s earnings distributed regularly to shareholders, proportionally based on their shareholding. Bonuses, by contrast, are residual profits distributed to shareholders after dividends have been paid—again allocated according to shareholding proportion. Generally, after completing its fiscal-year accounting settlement, a listed company distributes part of its profits to shareholders based on their shareholdings. Such dividend distributions typically occur during the second and third quarters of the following year. In distributing dividends and bonuses, preferred shareholders first exercise their right to profit distribution at the stipulated dividend rate. Ordinary shareholders then receive dividends from the remaining profits—their dividend rate not necessarily being fixed. After these dividends are distributed, if the listed company still has distributable profits remaining, it may—depending on circumstances—distribute bonuses to ordinary shareholders. During dividend and bonus distributions by listed companies, the total amount distributed generally does not exceed earnings per share (EPS) after tax—unless accumulated undistributed profits from prior years are carried forward. For example, Chinese regulations require listed companies to allocate a prescribed proportion of after-tax profits to capital reserves, either to offset losses or to convert into registered capital. Consequently, the total amount distributed as dividends and bonuses is always less than the company’s after-tax profit. Since a listed company’s after-tax profit serves both as the source and the upper limit for dividends and bonuses, the company’s operating performance directly determines whether—and how much—dividends and bonuses can be distributed.