dividend in arrears

Examples of dividend in arrears in the following topics:

• Accounting for Preferred Stock

  • Such dividends—in full or in part—must be declared by the board of directors before paid.
  • Dividends in arrears are cumulative unpaid dividends, including the quarterly dividends not declared for the current year.
  • Dividends in arrears never appear as a liability of the corporation because they are not a legal liability until declared by the board of directors.
  • However, since the amount of dividends in arrears may influence the decisions of users of a corporation's financial statements, firms disclose such dividends in a footnote.
  • A corporation's cumulative preferred dividends in arrears at liquidation are payable even if there are not enough accumulated earnings to cover the dividends.

• Earnings per Share

  • The EPS formula does not include preferred dividends for categories outside of continued operations and net income.
  • If preferred dividends total $100,000, then that money is not available to distribute to each share of common stock.
  • Only preferred dividends actually declared in the current year are subtracted.
  • The exception is when preferred shares are cumulative, in which case annual dividends are deducted regardless of whether they have been declared or not.
  • Dividends in arrears are not relevant when calculating EPS.

• Liquidation Preference

  • In most legal systems, only fixed security takes precedence over all claims.
  • A corporation's cumulative preferred dividends in arrears at liquidation are payable even if there are not enough accumulated earnings to cover the dividends.
  • Also, the cumulative dividend for the current year is payable.
  • Stock may be preferred as to assets, dividends, or both.
  • Unclaimed assets will usually vest in the state as bona vacantia.

• Preferred Stock Rules and Rights

  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.
  • Terms of the preferred stock are stated in a "Certificate of Designation. "
  • The following features are usually associated with preferred stock: Preference in dividends preference in assets, in the event of liquidation, convertibility to common stock, callability, and at the option of the corporation.
  • Some preferred shares gain voting rights when the preferred dividends are in arrears for a substantial time.
  • Preferred stock may also have rights to cumulative dividends.

• Common Stock

  • The terms "voting share" or "ordinary share" are also used in other parts of the world.
  • "Common stock" is used primarily in the United States.
  • If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full.
  • Such shareholders usually receive nothing in the case of company liquidation.
  • Common shareholders do not get guaranteed dividends, so their returns can be uncertain.

• Dividend Preference

  • Issuing so many additional shares of common stock that earnings per share are less in the current year than in prior years.
  • Therefore, the firm fixes the dividend per share.
  • The terms "voting share" or "ordinary share" are also used in other parts of the world; common stock is primarily used in the United States.
  • If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full.
  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock upon liquidation, and in the payment of dividends.

• Dividend Yield Ratio

  • The dividend-price ratio is a company's annual dividend payments divided by market capitalization, or dividend per share divided by the price per share.
  • Dividend yield is used to calculate the earning on investment (shares) considering only the returns in the form of total dividends declared by the company during the year.
  • Preferred share dividend yield is the dividend payments on preferred shares, which are set out in the prospectus.
  • Some investors may find a higher dividend yield attractive, for instance, as an aid to marketing a fund to retail investors, or maybe because they cannot get their hands on the capital, which may be tied up in a trust arrangement.
  • In contrast, some investors may find a higher dividend yield unattractive, perhaps because it increases their tax bill.

• Investor Preferences

  • The significance of investors' dividend preferences is a contested topic in finance that has serious implications for dividend policy.
  • Investor preferences are first split between choosing dividend payments now, or future capital gains in lieu of dividends.
  • The investor's preference between the current cash dividend and the future capital gain has been viewed in kind.
  • Many people hold the opinion that the future gains are more risky than the current dividends, as the "Bird-in-the-hand Theory" suggests.
  • In contrast, others (see Dividend Irrelevance Theory) argue that the investors are indifferent between dividend payments and the future capital gains.

• Dividends Payable

  • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
  • When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders as dividends.
  • There are two ways to distribute cash to shareholders: share repurchases (reported as treasury stock in the owner's equity section of the balance sheet) or dividends.
  • Therefore, a shareholder receives a dividend in proportion to the shares he owns -- for example, if shareholder Y owns 100 shares when company Z declares a dividend of USD 1.00 per share. then shareholder Y will receive a dividend of USD 100 for his shares.
  • Companies that declare dividends must record a liability for the amount of the dividends that will be paid to investors.

• Residual Dividend Model

  • The Residual Dividend Model first uses earnings to finance new projects, then distributes the remainder as dividends.
  • The Residual Dividend Model is a method a company uses to determine the dividend it will pay to its shareholders.
  • The Residual Dividend Model is an outgrowth of The Modigliani and Miller Theory that posits that dividends are irrelevant to investors.
  • What investors want are high returns - either in the form of dividends or in the form of re-investment of retained earnings by the firm .
  • The Residual Model dividend policy is a passive one and, in theory, does not influence market price because the same wealth is created for the investor regardless of the dividend.