Quarterly dividends provide a steady stream of cash flow to investors, which subsequently can raise a stock's price, notes the Houston Chronicle. Stocks that pay dividends are generally a safer investment since they provide a minimum rate of return.
A company has a Board of Directors, and this group is responsible for issuing dividend payments, notes the Houston Chronicle. Shareholders that own the stock by the record date are eligible to receive the dividend payments. While dividends provide financial benefit to shareholders, the funds used to pay the dividends are taken directly out of a company's profits. From an accounting perspective, these dividend payments get deducted from retained earnings.
Dividends are not guaranteed, meaning the investors should not invest in a company simply for the hope of receiving dividend distributions, notes CNN Money. Generally, dividend payments are based on the number of shares owned by an investor, notes Forbes Retirement. Investors can analyze historical dividend amounts and yields to predict future dividend payments. Stock prices and dividends have an inverse relationship, meaning that when stock prices increase, dividend yields decrease. Ordinary dividends are taxed at regular tax rates, whereas qualified dividends are taxed at more favorable capital gains rates, according to the Internal Revenue Service.