Paid Dividends

(noun)

Paid dividends were made tax deductible for corporations under the Undistributed Profits Tax bill. This move was highly unpopular and the loophole was repealed in 1938.

Related Terms

Examples of Paid Dividends in the following topics:

  • Dividend Payments and Earnings Retention

    • Cash dividends (most common) are those paid out in currency, usually via electronic funds transfer or a printed paper check.
    • Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid.
    • Thus, if a person owns 100 shares and the cash dividend is $0.50 per share, the holder of the stock will be paid $50.
    • Dividends paid are not classified as an expense but rather a deduction of retained earnings.
    • Dividends paid do not show up on an income statement but do appear on the balance sheet.

  • Methods of Paying Dividends

    • Dividends, which are distributed based on how many shares each person owns, can be paid using cash, stock, or other company property.
    • Cash dividends are those paid out in currency, usually via electronic funds transfer or a printed paper check.
    • Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid.
    • Dividends paid are not classified as an expense, but rather a deduction of retained earnings.
    • Dividends paid does not show up on a Income Statement but does appear on the Balance Sheet.

  • 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.
    • The dividend yield or the dividend-price ratio of a share is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share.
    • Instead, dividends paid to holders of common stock are set by management, usually with regard to the company's earnings.
    • There is no guarantee that future dividends will match past dividends or even be paid at all.
    • For example, take a company which paid dividends totaling 1 per share last year and whose shares currently sell for $20.

  • Defining Dividends

    • Dividends are a portion of company earnings regularly paid to shareholders, paid as some fixed amount per share price.
    • When it is time to make dividend payments, corporations always pay preferred stock owners first, and then common stock dividends are allocated after all preferred dividends are paid in full.
    • Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation.
    • Ex-dividend date (typically two trading days before the record date for U.S. securities) is the day on which all shares bought and sold no longer come attached with the right to be paid the most recently declared dividend.
    • It is relatively common for a stock's price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid.

  • Stock Dividends

    • When a stock dividend is paid, no shareholder actually increases the values of his or her assets.
    • If a 5% stock dividend is paid, the total number of shares outstanding increases by 5%, and each shareholder will receive 5 additional shares for each 100 held.
    • A stock dividend could be paid from shares not-outstanding.
    • Stock dividends may also be paid from non-outstanding stock or from the stock of another company (e.g. its subsidiary).
    • The company would record the stock dividend as a debit to the retained earnings account and credit both common stock and the paid in capital accounts.

  • Accounting for Preferred Stock

    • A dividend is the amount paid to preferred stockholders as a return for the use of their money.
    • Such dividends—in full or in part—must be declared by the board of directors before paid.
    • When noncumulative preferred stock is outstanding, a dividend omitted or not paid in any one year need not be paid in any future year.
    • Cumulative preferred stock is preferred stock for which the right to receive a basic dividend, usually each quarter, accumulates if the dividend is not paid.
    • It has paid no dividends for two years.

  • Dividends Payable

    • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
    • Dividends are the portion of corporate profits paid out to shareholders.
    • A dividend is allocated as a fixed amount per share.
    • 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.

  • Stock Dividends vs. Cash Dividends

    • Cash dividends are those paid out in currency, usually via electronic funds transfer or by paper check.
    • Stock or scrip dividends are those paid out in the form of additional stock shares of either the issuing corporation or another corporation.Cash dividends provide investors with a regular stream of income.
    • Stock dividends, unlike cash dividends, do not provide liquidity to the investors; however, they do ensure capital gains to the stockholders.
    • Cash dividends are immediately taxable under most countries' tax codes as income, while stock dividends are not taxable until sold for capital gains (if stock was the only choice for receiving dividends).
    • For the firm, dividend policy directly relates to the capital structure of the firm, so choosing between stock dividends and cash dividends is an important consideration.

  • Signaling

    • For instance, when managers lack confidence in the firm's ability to generate cash flows in the future they may keep dividends constant, or possibly even reduce the amount of dividends paid out.
    • Investors can use this knowledge about managers' behavior to inform their decision to buy or sell the firm's stock, bidding the price up in the case of a positive dividend surprise, or selling it down when dividends do not meet expectations.
    • This, in turn, may influence the dividend decision as managers know that stock holders closely watch dividend announcements looking for good or bad news.
    • Miller and Rock pointed out that this is likely due to the information content of dividends.
    • Describe what information a shareholder can obtain from a company issuing dividends

  • Accounting Considerations

    • Accounting for dividends depends on their payment method (cash or stock).
    • On the declaration day, the firm's Board of Directors announces the issuance of stock dividends or payment of cash dividends.
    • The amount is placed in a separate dividends payable account.
    • Retained earnings are part of the balance sheet (another basic financial statement) under "stockholders equity (shareholders' equity). " It is mostly affected by net income earned during a period of time by the company less any dividends paid to the company's owners/stockholders.
    • We must also consider the difference between market value and par (stated) value and record that as credit for additional paid-in-capital .