Many of us are familiar with what bonus pay is and I’m pretty sure all of us would look forward to receiving it as the financial year comes to a close. In fact, I would be lying if I’d say otherwise. Employers often distribute bonus pay at the end of the company’s financial year or, for some companies in Singapore, right before the Chinese New Year.
Often given as a reward (and gratitude) by companies to employees for hitting certain goals or attaining high performances, this bonus (which may include two months or more worth of pay) goes a long way for them, especially for those who are actively saving for their long-term goals.
Yet interestingly, there are some companies who distribute dividends instead.
So, what is a dividend?
In simple terms, a dividend refers to a sum of money (or stocks) regularly distributed to shareholders out of a portion of the company’s reserves or profits. Depending on the company, dividends can be distributed on a monthly, quarterly (every three months), or annually basis. In many ways, dividends may act as a source of reliable passive income.
However, not every company has the capability to issue dividends.
New startups and companies that face fast growth tend to either report losses in their early foundation years or attempt to reinvest whatever profits that come in for further growth. If that’s the case, it thus makes sense that the best dividend payers, who seek to maximise their shareholders’ wealth, are larger and well-established companies with reportedly predictable profits.
Like bonuses, mature companies with consistent profits tend to disburse annual and performance bonuses as compared to startups which may fetch it lower profits.
Why do some companies issue dividends while others offer bonuses?
When a company consistently issues dividends, it does send a strong signal to investors that the company is doing relatively well and has confidence in yielding future profits. Together with the allure of the steady income dividends provide, potential investors would be more inclined to purchase the company’s stocks and thus increasing its stock price.
On the other hand, when a company issues bonuses as a token of gratitude for employees’ performances, employees are more likely to be motivated to work harder to attain such goals, thereby improving morale and company’s productivity.
In other words, one can say that companies that issue dividends aim to reward shareholders while companies that give out bonuses aim to reward employees.
The bottom line … why not make money work for you?
Undoubtedly, there are great similarities between bonuses and dividends, the former is earned because you, as an employee, have somehow contributed to the company’s annual growth while the latter is issued to you, as a shareholder, regardless of where you are or what you are doing.
Rather than work for money, why not sign up with Smartly and let money work for you?
Equipped with a diversified portfolio of ETFs which include a list of companies that issue dividends, Smartly offers interested investors a fuss-free solution to invest. Not only does Smartly boost great transparency and efficiency, it also exercises initiative to reinvest your dividends so that your investment can grow faster.
(Dividend) This is the day the Board of Directors announces their intention to pay a dividend. The company then creates a liability in its books; it now owes the money to the stockholders. The Board will also announce a date of record and a payment date.
(Bonus) The date when your company declares that they decide to give out three months of bonus at the end of this financial year.
Date of record:
(Dividend) This date is also known as “ex-dividend” date. It is the day upon which the stockholders of record are entitled to the upcoming dividend payment.
(Bonuses) If you joined the company after the ex-dividend date, you would not receive the upcoming bonus. Only employees who have joined the company before the ‘date of record’ is entitled to the bonus.
(Dividend) This is the date when the dividend is given to the shareholders of the company.
(Bonuses) The date that most people await eagerly for — the day when the company issues out the bonuses to the employees.