You earnings they are the different forms of remuneration that a shareholder is entitled to be a partner in a company. Every investor accompanying the stock Exchange is familiar with this concept.
However, many beginners in variable income they may have difficulties for not knowing the earnings and their main types. With that in mind, we explain in this article everything that is most important about the subject. Check it out below!
What are earnings?
In the financial market, earnings are benefits distributed by companies to their shareholders in order to reward investors for putting their resources into the business.
When receiving this type of remuneration, it is possible to obtain profit if the payment is in cash or expand the portfolio of investments, if the return comes in the form of new shares.
The most common earnings are dividends and interest on shareholders' equity (JSCP), but there are also other types that we will learn about later.
Why do companies distribute payment of earnings?
To understand why companies distribute earnings, you need to take a step back and observe because they decide to go public.
Sell actions is one of the most effective ways to obtain resources to expand the operation. Otherwise, it is necessary to resort to loans and financing, which creates a debt that can harm the future of the business.
When a company decides to operate on the Stock Exchange, it goes through a process of IPO. From then on, it starts offering shares to the public, through negotiations brokered by investment brokers.
Whenever a person buys shares in a company, he becomes a partner in that company, as he is acquiring a fraction of your net worth.
The distribution of earnings is the way that companies have found to remunerate these members, sharing the profits and other financial gains obtained by the company in a certain period.
In addition to retaining current investors, earnings are a great way to attract new shareholders, ensuring that the company manages to capitalize even more.
>> Do you want to know more about the financial market? Check out this other blog post: Financial market: what it is and how it works <
What are the types of earnings offered by companies?
The types of earnings are divided into four:
- Jinterest on equity;
- Participation rights.
Next, find out how each of them works.
Dividends they are payments made to the shareholders through the distribution of part of the net profit for a certain period. In most cases, this type of earnings is made once a year, but there are also companies that pay half-yearly, quarterly or even monthly dividends.
Under the UK residents Corporation Law, every publicly traded company must pay a dividend of at least 25% of net profit calculated in the year. On the other hand, the same law allows the suspension of this payment in specific cases, such as some situations of financial difficulty.
Despite the possibility of paying more than 25%, organizations are unlikely to share all of their profits, since part of that money is reinvested in the business itself.
Dividends can be distributed in several ways: dimoney, shares or properties (which is rarer). Whatever the format, the calculation is always performed on the profit after tax. Thus, when the shareholder receives payment, he is exempt from Income tax.
Interest on own capital (JSCP)
Just like dividends, interest on equity they are also a way to distribute the profit among the shareholders, but with some differences. One of the main ones is that these earnings can be paid based on the retained earnings by the company in previous years.
Another important point is that JSCPs have an incidence of 15% in Withholding income tax, unlike dividends that are exempt.
This is because in accounting terms, this income is taxed as an expense by the company. In other words, it is deducted from the company's profit before it is taxed.
Under current rules, JSCP may be limited to up to 50% of the year's profit Or the 50% of profit reserves – the greater the two. The advantage of this is that the company can distribute these earnings even if there have been losses in the current year: it is enough that it has accumulated profit reserves.
From a fiscal point of view, JSCPs are advantageous for the company. As these resources are accounted for as financial expenses, this relieves the tax burden on non-exempt income.
Bonuses are earnings that are usually paid in shares, not in cash. They occur when the company decides incorporate part of its profit in reserves in the share capital, that is, use the money earned to expand your bond offering. To do this, it issues a number of papers proportional to this value.
The new shares issued are automatically distributed to shareholders entitled to bonuses.
It is worth noting that with the increase in the number of shares, the value of each security decreases, but the total equity remains unchanged. Although the fall seems disadvantageous, it is actually good news: with more shares in the portfolio, dividends increase.
There are also occasional cases of bonuses paid in cash, although they are more rare. When they occur, they are granted to investors as an additional share of the profits.
In this type of earnings, the shareholder has a preference to acquire shares in the company in the event of a capital increase.
The aim is to give the investor the opportunity to preserve the proportions of shares that it already has that the expansion of the offer of securities can cause a negative impact in this sense.
Normally, the subscription price is less than the share price in the market, that is, those who are already shareholders of the company buy cheaper than those who are not.
If the price is equivalent or less, there is no advantage in the subscription rights since the purchase conditions do not favor the shareholder at all.
If you prefer, the investor can also sell his subscription right instead of exercising it, as long as this is done within a pre-established period.
How do earnings payments work?
To understand how earnings payments work, it is necessary to know some basic concepts of this mechanism:
- declaration date: moment when the Board of Directors informs that there will be the payment of dividends. As of the announcement, the company is required by law to comply with the remuneration;
- date “with”: last day on which an investor can still buy a share of the company with the right to receive the earnings announced by the company;
- “ex” day: day after the “com” date, when new buyers are no longer entitled to receive the announced earnings;
- payday: day when the amounts are deposited in the investor's account with the broker or in the desired bank account. The transfer is made directly by the shareholder company, via Companhia Brasileira de Liquidação e Custódia (CLBC).
Payment of earnings is made only to investors who hold company securities on the last day that they are “with”.
Whoever has shares in the company up to that date will receive 100% than was announced. Otherwise, you will not receive anything, regardless of how long you have been with the papers before that.
Declaration, “com”, “ex” and payment dates are not always close to each other. Therefore, always consult this information directly on the investor relations website the company in question.
Now that you know what earnings are and what their types are, you are better prepared to make the right choices when buying stocks.
By observing how companies remunerate their shareholders, you will be able to develop a consistent strategy and take better care of your investment portfolio!
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