How to Pay Dividends Monthly
Most companies pay dividends to their shareholders on a periodic basis, such as quarterly or every six months. However, some companies may find it more suitable to pay dividends on a monthly basis for reasons such as cash flow concerns. Paying dividends monthly can be an appropriate strategy if a company has stable cash flows. This strategy allows for easy cash flow management as a certain amount of cash is allocated for payment of dividend, similar to payment of interest on loan obligations. Companies paying dividends less frequently can hold excess cash in interest-paying accounts and can benefit from the activity, but those companies paying dividends monthly can not take advantage of this benefit.
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Instructions
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Use your income statement to determine the amount of profits for the company during a particular period or for the latest year. The profits appear on the bottom right side of the income statement under the given year.
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Multiply the company profits by the retention ratio to obtain the estimate for the amount of dividends the company will pay. The retention ratio is the percentage of the profit the company intends to retain as opposed to distribute to the shareholders.
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Divide the amount of dividends to be paid in total by the number of months in the year. For example, if you intend to pay $12,000 as dividends over the year, the monthly dividend payment will be $1,000. This is the dollar value of the monthly dividend payment.
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Divide the monthly dividend payment by the total number of common shares of the company. The common shares of a company are those shares that are entitled to the dividend. This gives the amount of dividend that will be paid on a monthly basis on each share outstanding for the company. For example, if the company has 1,000 shares of common stock, the per-share dividend will be $1.
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Match the dividend payment required with the cash flows of the company to make sure enough cash is available during each month to pay the dividends. Cash flow forecasts may be lower for certain months and the company can adjust the dividend payment according to the cash flows accordingly. Suppose a company expects to have $800 of excess cash flows in July and $1,200 in August. It can choose to declare a lower dividend for the first month and smooth the distribution by increasing the dividend over the next month.
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Pay the dividends by depositing the amount monthly into the shareholders' accounts with their respective brokers. The company can also send a check to the shareholders to clear the dividends but the most efficient method is through the electronic system through the broker.
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Tips & Warnings
Monthly dividends imply that your shareholders rely on these dividends as a regular source of income. One of their major concerns is stability in payment of dividends.
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