Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 3 Stock Dividends and Basic Knowledge of Bonuses (1)
((Section [-])) Sources of dividends
Dividends are the profits that shareholders receive from listed companies at a certain rate on a regular basis, and dividends are the remaining profits that are distributed to shareholders in proportion to their shareholding after dividends are distributed by listed companies.Obtaining dividends and dividends is the basic purpose of shareholders investing in listed companies, and it is also the basic economic rights of shareholders.

Generally speaking, after the financial year is settled, a listed company will distribute part of the profits as dividends to shareholders according to the number of shares held by shareholders.According to the information disclosure management rules of listed companies, listed companies in my country must publish their annual financial reports within 120 days of the end of the fiscal year, and the profit distribution plan must be announced in the annual report, so the dividend distribution work of listed companies is generally concentrated in the next in the second and third quarters of the year.

When distributing dividends, firstly, preferred shareholders exercise income distribution according to the prescribed dividend rate, and then ordinary shareholders receive dividends according to the remaining profits, and the dividend rate is not necessarily fixed.After receiving the dividends, if the listed company still has profits to distribute, it can distribute dividends to ordinary shareholders according to the situation.

The amount of dividends and bonuses for shareholders for a year depends on the operating performance of listed companies, because dividends and bonuses are extracted from after-tax profits, so after-tax profits are not only the only source of dividends and bonuses, but also the source of dividends for listed companies. maximum limit.When a listed company distributes dividends, the total amount will generally not be higher than the after-tax profit per share, unless there is profit transferred from the previous year.Since the company laws of various countries have restrictive regulations on the company's dividend distribution, for example, my country stipulates that listed companies must withdraw capital reserves from after-tax profits in a prescribed proportion to make up for company losses or convert them into company capital, so listed companies distribute The total amount of dividends and bonuses is always less than the company's after-tax profit.

Since the after-tax profit of a listed company is not only the source of dividends and bonuses, but also its maximum limit, the operating conditions of listed companies are directly related to the distribution of dividends and bonuses.After the end of an operating fiscal year, when the listed company has made a profit, dividends and dividends can be distributed.And the more profits, the more after-tax profits are used to distribute dividends and bonuses, and the greater the amount of dividends and bonuses.

In addition to operating performance, the dividend policy of listed companies also affects dividends and bonus distribution.After a listed company makes a profit, its after-tax profit has two major uses. In addition to dividends and dividends, it also needs to replenish capital to expand reproduction.If the company's dividend policy is inclined to the company's long-term development, it is possible to pay less dividends or no dividends and turn profits into capital reserves.On the contrary, the amount of dividends paid out will be larger.

The distribution of dividends and bonuses is affected by national tax policies.Shareholders of listed companies, whether they are natural persons or legal persons, must bear tax obligations according to law. For example, in my country, there are clear regulations that shareholders must pay income tax on stock gains (dividends). The proportion is based on the face value of the stock. The deposit interest rate part is subject to 20% income tax.

When a listed company implements dividend distribution, it must comply with legal regulations and must not violate the company's articles of association. These regulations also affect the amount of dividends and bonuses to a certain extent.These principles are as follows:
([-]) The after-tax profits must be used to distribute dividends and bonuses after necessary deductions are made according to the law.The specific deduction items and the ratio of the amount depend on the law and the company's articles of association.Dividend distribution resolutions passed by the general meeting of shareholders and the board of directors of listed companies cannot be in conflict with the provisions of the law and the company's articles of association.

In the after-tax profits of listed companies, the order of distribution is as follows:
1. Make up for the losses of previous years.

2. Withdraw the statutory surplus reserve fund.

3. Withdraw public welfare funds.

4. Withdraw any provident fund.

5. Payment of dividends on preferred shares.

6. Payment of common stock dividends.

After the company pays income tax according to the prescribed ratio, it will withdraw 10% of the statutory surplus reserve fund according to the amount of registered capital (that is, the total share capital), but when the statutory surplus reserve fund reaches more than 50% of the registered capital, it can no longer be withdrawn.The proportion of public welfare fund is generally 5-10%, and the discretionary provident fund and dividends are submitted by the company's board of directors to the company's shareholders' meeting for approval and implementation based on the profitability of the year.

([-]) Dividend distribution must implement the dividend policy established by the listed company.Listed companies generally have to organically combine the company's long-term development needs with shareholders' pursuit of short-term investment returns, and formulate corresponding dividend policies as the basis for dividend distribution.

([-]) Dividend distribution must implement the principle of same share, same benefit.The specific manifestation is that there should be no difference in the amount, form, and time of dividend distribution between shareholders holding the same type of stock, except as otherwise stipulated in the company's articles of association.For example, when some listed companies in the Shanghai and Shenzhen stock markets distribute dividends, they give bonus shares to individual shares or internal shares of employees, and distribute cash dividends to legal person shares or state shares.This is actually an unfair behavior. It violates the rights and interests of legal person shares and state shares.

([-]) Listed companies must also pay attention to relevant legal restrictions when distributing dividends in accordance with the above principles.Generally include:
1. When a listed company is unable to pay due debts or will be unable to pay debts after implementing dividend distribution, it shall not distribute dividends or bonuses.Even if the total assets of the company exceed the total debts owed by the company, the company shall not distribute dividends or bonuses when its working capital is insufficient to pay off due debts.

2. When a listed company distributes dividends and bonuses, it must not violate the terms of the contract signed by the company to restrict the distribution of dividends and bonuses.

3. The distribution of dividends and bonuses by listed companies shall not affect the structure of the company's assets and its normal operation according to law.Thus, the company's authorized capital (share capital) must not be reduced by the amount paid by the company for the distribution of dividends, bonuses or the recovery of treasury stocks.

4. Self-limitation by the company's board of directors.Its main manifestation is that when distributing dividends and bonuses, the retained earnings drawn by the company's board of directors from the company's profits for the purpose of expanding reproduction or coping with unexpected risks must not be used.

(Section [-]) Distribution method of dividends
Dividends, as the investment income of shareholders, are monetary amounts calculated in units of shares, such as how many yuan per share.However, when listed companies implement specific distributions, there are four forms: cash dividends, property dividends, debt dividends, and stock dividends.

Property dividends are dividends and bonuses that listed companies distribute to shareholders with assets other than cash.It can be securities of other companies held by listed companies, or it can be physical objects.Debt dividends are a kind of debt that listed companies use to distribute bonds or notes payable as dividends to shareholders by establishing a liability.These bonds or notes payable are not only dividends paid by the company, but also determine the shareholders' independent claims on the listed company.Cash dividends are dividends paid by listed companies to shareholders in monetary form.Stock dividends are dividends that listed companies distribute to shareholders in the form of stocks, which is commonly referred to as bonus shares.

The distribution of dividends in the form of bonus shares is actually to keep the cash that should be distributed to shareholders in the enterprise for development and reproduction. It is not much different from the temporary non-distribution of dividends by joint-stock companies.Stock dividends increase the stock in the hands of shareholders nominally, but at the same time the company's registered capital increases and the net asset content of the stock decreases.But in fact, the total asset content of the stocks in the hands of shareholders has not changed.

Since dividends and bonuses can only be distributed to shareholders after profits are made, listed companies generally do this work after the company's business year is closed.In practice, some listed companies conduct final accounts twice within a year, one in the middle of the business year and the other at the end of the business year.Correspondingly, two dividends are distributed to shareholders in order to return shareholders in time and attract investors.However, the annual mid-term distribution of dividends is different from the year-end distribution of dividends. Its function is to distribute within the range of the profit balance before the mid-term, and it can only be carried out under the premise that it is expected that there will be no loss at the end of the year.

According to the provisions of the Company Law, the basic procedure for dividend distribution of listed companies is that the board of directors of the company first determines the dividend distribution plan based on the company's profit level and dividend policy, and then submits it to the general meeting of shareholders for consideration and approval before it becomes effective.The board of directors can announce to the shareholders according to the dividend distribution plan, and distribute the dividends in the agreed place and in the agreed way on the stipulated dividend payment date.

In the Shanghai and Shenzhen stock markets, the dividend distribution of stocks is assisted by the stock exchange and the registration company.When distributing dividends, the registered company in Shenzhen will directly log the distributed bonus shares into the stockholders' stock accounts, and transfer the cash dividends to the shareholders' capital accounts through the securities companies with which the shareholders opened their accounts.Companies listed on the Shanghai Stock Exchange deal with bonus shares in the same way as the Shenzhen Stock Exchange, but shareholders need to go to the securities company to complete the relevant procedures for cash bonuses, that is, shareholders sell the bonuses at the counter within the specified time limit as cash bonus rights, and the dividends will be paid by the company. The brokerage transfers to the capital account.If you fail to go through the procedures within the time limit, you need to entrust a broker to go to the stock exchange to go through the relevant procedures.

(Section [-]) Ex-Right and Ex-Dividend
Although there are four ways for listed companies to distribute dividends, listed companies in the Shanghai and Shenzhen stock markets generally only use stock dividends and cash dividends for profit distribution, which are collectively referred to as bonus shares and cash.When a listed company distributes dividends to shareholders, the stock must be ex-divided; when a listed company sends bonus shares to shareholders, the stock must be ex-divided.

When a listed company announces that there is profit available for distribution in the previous year and is ready to implement it, the stock is called a stock with rights, because holding the stock has the right to dividends.At this stage, listed companies generally have to announce a time called the "equity registration date", that is, shareholders who hold the stock at the close of the market on that day will have the right to dividends.

In the previous stock paper transactions, in order to prove the right to dividends to the listed company, shareholders had to register on the equity registration date announced by the company, and only stockholders who were recorded on the company’s shareholder register on this date were eligible. Eligible to receive dividends distributed by listed companies.After the implementation of paperless stock trading, equity registration is automatically carried out through the computer trading system. Shareholders do not need to go to listed companies or registered companies for special registration. As long as they still own stocks at the close of registration, shareholders will automatically enjoy the right to dividends.

After the equity registration, the stock will be ex-rights and ex-dividends, that is, the dividend rights contained in the stock will be released.All ex-rights and ex-dividends are carried out after the market close on the equity registration date.Shareholders who purchase shares after ex-rights will no longer have the right to dividends.

On the ex-right and ex-dividend date of the stock, the stock exchange must calculate the ex-right and ex-dividend price of the stock as a reference for the stockholders to open on the ex-right and ex-dividend date.

Because owning stocks before the opening of the market includes rights, and the stocks traded on the next day after the market close will no longer participate in profit distribution, the ex-rights and ex-dividend prices are actually converted from the closing price on the equity registration date.In this way, the ex-dividend price is the closing price on the record date minus the cash dividend payable per share, and the formula is:

Ex-dividend price = closing price on the record date - entitlement per share.

For ex-rights, the closing price on the equity registration date minus the equity contained in it is the ex-rights quotation.Its calculation formula is:
Equity price = closing price on the equity registration date ÷ (1+ bonus rate per share)
If the stock has cash dividends and bonus shares at the time of dividend distribution, the ex-right and ex-dividend price is:
Ex-rights price = (closing price on equity registration date - cash dividend per share + allotment rate × allotment price) ÷ (1 + bonus rate per share + allotment rate per share)
(Section [-]) Pros and Cons of Bonus Shares
When listed companies pay dividends, Chinese shareholders generally prefer to give bonus shares.In fact, for listed companies, there is no difference between giving bonus shares to shareholders when paying dividends, and not paying dividends at all and rolling over profits to the next year.These methods are to keep the profits that should be distributed to shareholders in the enterprise as funds for the development of production in the next year.On the one hand, it enhances the operating strength of the listed company and further expands the scale of production and operation of the enterprise. On the other hand, it does not require a large amount of cash to pay dividends like cash dividends, because the cash retained by enterprises is generally It's not too much.Therefore, these forms are more beneficial to listed companies.

When a listed company does not pay dividends to shareholders or roll over profits to the next year, this part of profits is recorded in the balance sheet in the form of capital reserves.When bonus shares are given to shareholders, this part of the profit will be recorded in the share capital as additional share capital and become part of the shareholders' equity.However, when giving bonus shares, because the share capital of the listed company has changed, on the one hand, the listed company needs to re-register with the local industrial and commercial management agency, and on the other hand, it needs to issue an announcement on the change of share capital.But no matter which of the above-mentioned methods is adopted to deal with the profits of the previous year, the total net assets of the listed company will not change in any way, and there will be no change in the operating strength of the future years.

For shareholders, distributing profits in the form of bonus shares will be better than not distributing profits.Although these methods will not change the shareholder's shareholding ratio, nor will it increase or decrease the gold content of the stock, because the bonus shares will also reduce the net asset value of each share in the same proportion while splitting the stock. But it can directly improve the economic benefits of shareholders.It is based on the following:

1. According to the current regulations of our country, the taxation of stock dividends can be deducted according to the savings rate of the same period, that is, a certain preference is given. The specific tax amount is 20% of the stock income tax after the dividends per share minus the savings rate of the same period. The amount of tax to be levied on each dividend is:

Income tax = (dividend per share - one-year regular savings rate for the current year) × 20%
When a listed company does not distribute profits in the current year or rolls over the profits to the next year, the amount of dividends in the next year will inevitably increase, and the shareholders will be reduced to enjoy the preferential treatment of tax relief.

2. In the stage where the supply of stocks exceeds demand, bonus shares increase the number of stocks of shareholders, which is conducive to the rise of stock prices under market speculation, thereby helping to increase the price difference income of shareholders.

3. After giving bonus shares, the number of shares increases. At the same time, due to the reduction of stock prices due to ex-rights, the threshold for buying such stocks is lowered, which can partially change the supply and demand relationship of stocks and increase stock prices.

Compared with giving bonus shares and cash, both are the returns of listed companies to shareholders, but in different ways.As long as a listed company makes profits in a certain year, it is a return to shareholders.However, giving bonus shares is different from distributing cash dividends. If you compare the two with bank deposits, cash dividends are a bit similar to deposit and interest collection, that is, after depositors deposit funds in the bank, they collect interest once a year.But giving bonus shares is similar to deposits with compound interest. The bank converts the interest due to the depositor into the principal every certain time interval, regenerates the interest, and pays it off in one lump sum after the expiration.However, the return method of giving out shares has its own uncertainty, because turning profits into equity and putting them into reproduction is a reinvestment behavior, which also faces risks.If the company's operation is relatively stable in the coming years, business development is relatively smooth, and its return on net assets can be higher than the average level, shareholders can get the expected return; if the return on net assets of the listed company is lower than the average level or bonus shares Due to the poor management of the listed company, not only will the shareholders not get the expected return in the next year, but they will also turn the dividends they deserved in the previous year into fixed assets.In this way, bonus shares are not as good as cash dividends, because shareholders can choose to invest in other stocks or investment tools with higher profit margins after obtaining cash.

(End of this chapter)