A dividend is a distribution of
profit
Profit may refer to:
Business and law
* Profit (accounting), the difference between the purchase price and the costs of bringing to market
* Profit (economics), normal profit and economic profit
* Profit (real property), a nonpossessory intere ...
s by a
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
to its
shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...
s. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business (called
retained earnings
The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that peri ...
). The current year profit as well as the retained earnings of previous years are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a
dividend reinvestment plan
A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive dividends directly as cash; instead, the investor's dividends are direc ...
, the amount can be paid by the issue of further shares or by
share repurchase
Share repurchase, also known as share buyback or stock buyback, is the re-acquisition by a company of its own shares. It represents an alternate and more flexible way (relative to dividends) of returning money to shareholders. When used in coord ...
. In some cases, the distribution may be of assets.
The dividend received by a shareholder is income of the shareholder and may be subject to income tax (see
dividend tax
A dividend tax is a tax imposed by a jurisdiction on dividends paid by a corporation to its shareholders (stockholders). The primary tax liability is that of the shareholder, though a tax obligation may also be imposed on the corporation in the f ...
). The tax treatment of this income varies considerably between jurisdictions. The corporation does not receive a tax deduction for the dividends it pays.
A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding. Dividends can provide stable income and raise morale among shareholders. For the
joint-stock company
A joint-stock company is a business entity in which shares of the company's capital stock, stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their share (finance), shares (certificates ...
, paying dividends is not an
expense
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...
; rather, it is the division of after-tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholders' equity section on the company's balance sheet – the same as its issued share capital.
Public companies
A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (list ...
usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a
special dividend
A special dividend is a payment made by a company to its shareholders, that the company declares to be separate from the typical recurring dividend cycle, if any, for the company.
Usually when a company raises the amount of its normal dividend, t ...
to distinguish it from the fixed schedule dividends.
Cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...
s, on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense.
The word "dividend" comes from the
Latin
Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...
word ''dividendum'' ("thing to be divided").
History
In financial history of the world, the
Dutch East India Company
The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
(VOC) was the first recorded (public) company ever to pay regular dividends. The VOC paid annual dividends worth around 18 percent of the value of the shares for almost 200 years of existence (1602–1800).
In common-law jurisdictions, courts have typically refused to intervene in companies' dividend policies, giving directors wide discretion as to the declaration or payment of dividends. The principle of non-interference was established in the Canadian case of ''Burland v Earle'' (1902), the British case of ''Bond v Barrow Haematite Steel Co'' (1902), and the Australian case of ''
Miles v Sydney Meat-Preserving Co Ltd
''Miles v Sydney Meat-Preserving Co Ltd'' was a 1912 decision of the High Court of Australia regarding directors' duties and shareholder primacy. Businessman William John Miles sued the company, of which he was a major shareholder, for its failure ...
'' (1912). However in ''Sumiseki Materials Co Ltd v Wambo Coal Pty Ltd'' (2013) the
Supreme Court of New South Wales
The Supreme Court of New South Wales is the highest state court of the Australian State of New South Wales. It has unlimited jurisdiction within the state in civil matters, and hears the most serious criminal matters. Whilst the Supreme Court i ...
broke with this precedent and recognised a shareholder's contractual right to a dividend.
Forms of payment
Cash dividends are the most common form of payment and are paid out in currency, usually via
electronic funds transfer
Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
or a printed paper
check
Check or cheque, may refer to:
Places
* Check, Virginia
Arts, entertainment, and media
* ''Check'' (film), a 2021 Indian Telugu-language film
* ''The Checks'' (episode), a 1996 TV episode of ''Seinfeld''
Games and sports
* Check (chess), a thr ...
. Such dividends are a form of investment income of the shareholder, usually treated as earned in the year they are paid (and not necessarily in the year a dividend was declared). For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid $50. Dividends paid are not classified as an
expense
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...
, but rather a deduction of
retained earnings
The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that peri ...
. Dividends paid does not appear on an
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
, but does appear on the
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
.
Different classes of stocks have different priorities when it comes to dividend payments. Preferred stocks have priority claims on a company's income. A company must pay dividends on its preferred shares before distributing income to common share shareholders.
Stock or scrip dividends are those paid out in the form of additional shares of the issuing corporation, or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares).
Nothing tangible will be gained if the stock is
split
Split(s) or The Split may refer to:
Places
* Split, Croatia, the largest coastal city in Croatia
* Split Island, Canada, an island in the Hudson Bay
* Split Island, Falkland Islands
* Split Island, Fiji, better known as Hạfliua
Arts, enterta ...
because the total number of shares increases, lowering the price of each share, without changing the
market capitalization
Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders.
Market capitalization is equal to the market price per common share multiplied by t ...
, or total value, of the shares held. (See also
Stock dilution
Stock dilution, also known as equity dilution, is the decrease in existing shareholders' ownership percentage of a company as a result of the company issuing new equity. New equity increases the total shares outstanding which has a dilutive effec ...
.)
Stock dividend distributions do not affect the market capitalization of a company. Stock dividends are not includable in the gross income of the shareholder for US income tax purposes. Because the shares are issued for proceeds equal to the pre-existing market price of the shares; there is no negative dilution in the amount recoverable.
Property dividends or dividends ''in specie'' (
Latin
Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...
for "
in kind The term in kind (or in-kind) generally refers to goods, services, and transactions not involving money or not measured in monetary terms. It is a part of many spheres, mainly economics, finance, but also politics, work career, food, health and othe ...
") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer, however, they can take other forms, such as products and services.
Interim dividends are dividend payments made before a company's Annual General Meeting (AGM) and final financial statements. This declared dividend usually accompanies the company's interim financial statements.
Other dividends can be used in
structured finance
Structured finance is a sector of finance - specifically financial law - that manages leverage and risk. Strategies may involve legal and corporate restructuring, off balance sheet accounting, or the use of financial instruments.
Securitization ...
. Financial assets with known market value can be distributed as dividends; warrants are sometimes distributed in this way. For large companies with subsidiaries, dividends can take the form of shares in a subsidiary company. A common technique for "spinning off" a company from its parent is to distribute shares in the new company to the old company's shareholders. The new shares can then be traded independently.
Dividend coverage
Most often, the payout ratio is calculated based on dividends per share and
earnings per share
Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company. It is a key measure of corporate profitability and is commonly used to price stocks.
In the United States, the Financial Accounting ...
:
A payout ratio greater than 100 means the company is paying out more in dividends for the year than it earned.
Dividends are paid in cash. On the other hand, earnings are an accountancy measure and do not represent the actual cash-flow of a company. Hence, a more liquidity-driven way to determine the dividend's safety is to replace earnings by
free cash flow
In corporate finance, free cash flow (FCF) or free cash flow to firm (FCFF) is the amount by which a business's operating cash flow exceeds its working capital needs and expenditures on fixed assets (known as capital expenditures). It is that porti ...
. The free cash flow represents the company's available cash based on its operating business after investments:
Dividend dates
A dividend that is declared must be approved by a company's
board of directors
A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...
before it is paid. For
public companies
A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (list ...
in the US, four dates are relevant regarding dividends:
Declaration date – the day the board of directors announces its intention to pay a dividend. On that day, a
liability is created and the company records that liability on its books; it now owes the money to the shareholders.
In-dividend date – the last day, which is one trading day before the ''ex-dividend date'', where shares are said to be ''cum dividend'' ('with
''includingdividend'). That is, existing shareholders and anyone who buys the shares on this day will receive the dividend, and any shareholders who have sold the shares lose their right to the dividend. After this date the shares becomes ''ex dividend''.
Ex-dividend date
The ex-dividend date, also known as the reinvestment date, is an investment term involving the timing of payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately held. The ex-date or ...
– the day on which shares bought and sold no longer come attached with the right to be paid the most recently declared dividend. In the United States and many European countries, it is typically one trading day before the ''record date''. This is an important date for any company that has many shareholders, including those that trade on exchanges, to enable reconciliation of who is entitled to be paid the dividend. Existing shareholders will receive the dividend even if they sell the shares on or after that date, whereas anyone who bought the shares will not receive the dividend. It is relatively common for a share's price to decrease on the ex-dividend date by an amount roughly equal to the dividend being paid, which reflects the decrease in the company's assets resulting from the payment of the dividend.
Book closure date – when a company announces a dividend, it will also announce the date on which the company will temporarily close its books for share transfers, which is also usually the record date.
Record date –
shareholders registered in the company's record as of the record date will be paid the dividend, while shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.
Payment date – the day on which dividend cheques will actually be mailed to shareholders or the dividend amount credited to their bank account.
Dividend frequency
![International dividend frequencies](https://upload.wikimedia.org/wikipedia/commons/3/39/International_dividend_frequencies.png)
The dividend frequency describes the number of dividend payments within a single business year. Most relevant dividend frequencies are yearly, semi-annually, quarterly and monthly. Some common dividend frequencies are quarterly in the US, semi-annually in Japan and Australia and annually in Germany.
Dividend-reinvestment
Some companies have
dividend reinvestment plan
A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive dividends directly as cash; instead, the investor's dividends are direc ...
s, or DRIPs, not to be confused with scrips. DRIPs allow shareholders to use dividends to systematically buy small amounts of stock, usually with no commission and sometimes at a slight discount. In some cases, the shareholder might not need to pay taxes on these re-invested dividends, but in most cases they do.
Dividend taxation
Most countries impose a
corporate tax
A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at ...
on the profits made by a company.
Most jurisdictions also impose a tax on dividends paid by a company to its
shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...
s (stockholders). The tax treatment of a dividend income varies considerably between jurisdictions. The primary tax liability is that of the shareholder, though a tax obligation may also be imposed on the corporation in the form of a
withholding tax
Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the income ...
. In some cases the withholding tax may be the extent of the tax liability in relation to the dividend. A dividend tax is in addition to any tax imposed directly on the corporation on its profits. Some jurisdictions do not tax dividends such as Singapore and UAE.
A dividend paid by a company is not an expense of the company.
Australia and New Zealand
Australia and New Zealand have a
dividend imputation
Dividend imputation is a corporate tax system in which some or all of the tax paid by a company may be attributed, or imputation (economics), imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution. ...
system, wherein companies can attach
franking credit
Dividend imputation is a corporate tax system in which some or all of the tax paid by a company may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution. In comparison to the ...
s or
imputation credits to dividends. These franking credits represent the tax paid by the company upon its pre-tax profits. One dollar of company tax paid generates one franking credit. Companies can attach any proportion of franking up to a maximum amount that is calculated from the prevailing company tax rate: for each dollar of dividend paid, the maximum level of franking is the company tax rate divided by (1 − company tax rate). At the current 30% rate, this works out at 0.30 of a credit per 70 cents of dividend, or 42.857 cents per dollar of dividend. The shareholders who are able to use them, apply these credits against their income tax bills at a rate of a dollar per credit, thereby effectively eliminating the
double taxation
Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).
Double liability may be mitigated i ...
of company profits.
India
In India, a company declaring or distributing dividends is required to pay a Corporate Dividend Tax in addition to the tax levied on their income. The dividend received by the shareholders is then exempt in their hands. Dividend-paying firms in India fell from 24 percent in 2001 to almost 19 percent in 2009 before rising to 19 percent in 2010. However, dividend income over and above attracts 10 percent dividend tax in the hands of the shareholder with effect from April 2016. Since the Budget 2020–2021, DDT has been abolished. Now, the Indian government taxes dividend income in the hands of investor according to income tax slab rates.
United States and Canada
The United States and Canada impose a lower tax rate on dividend income than ordinary income, on the assertion that company profits had already been taxed as
corporate tax
A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at ...
.
Effect on stock price
After a stock goes ex-dividend (when a dividend has just been paid, so there is no anticipation of another imminent dividend payment), the stock price should drop.
To calculate the amount of the drop, the traditional method is to view the financial effects of the dividend from the perspective of the company. Since the company has paid say £''x'' in dividends per share out of its cash account on the left hand side of the balance sheet, the equity account on the right side should decrease an equivalent amount. This means that a £''x'' dividend should result in a £''x'' drop in the share price.
A more accurate method of calculating this price is to look at the share price and dividend from the after-tax perspective of a share holder. The after-tax drop in the share price (or capital gain/loss) should be equivalent to the after-tax dividend. For example, if the tax of capital gains ''T''
cg is 35%, and the tax on dividends ''T''
d is 15%, then a £1 dividend is equivalent to £0.85 of after-tax money. To get the same financial benefit from a capital loss, the after-tax capital loss value should equal £0.85. The pre-tax capital loss would be = = = £1.31. In this case, a dividend of £1 has led to a larger drop in the share price of £1.31, because the tax rate on capital losses is higher than the dividend tax rate.
Finally, security analysis that does not take dividends into account may mute the decline in share price, for example in the case of a
price–earnings ratio
The price-earnings ratio, also known as P/E ratio, P/E, or PER, is the ratio of a company's share (stock) price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or under ...
target that does not back out cash; or amplify the decline when comparing different periods.
The effect of a dividend payment on share price is an important reason why it can sometimes be desirable to exercise an
American option In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These optionsâ ...
early.
Criticism and analysis
Some believe that company profits are best re-invested in the company with actions such as research and development, capital investment or expansion. Proponents of this view (and thus critics of dividends per se) suggest that an eagerness to return profits to shareholders may indicate the management having run out of good ideas for the future of the company. Some studies, however, have demonstrated that companies that pay dividends have higher earnings growth, suggesting that dividend payments may be evidence of confidence in earnings growth and sufficient profitability to fund future expansion.
Benjamin Graham
Benjamin Graham (; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American economist, professor and investor. He is widely known as the "father of value investing", and wrote two of the founding texts in neoclassical inves ...
and
David Dodd
David LeFevre Dodd (August 23, 1895 – September 18, 1988) was an American educator, financial analyst, author, economist, and investor. In his student years, Dodd was a ' and colleague of Benjamin Graham at Columbia Business School.
The Wall ...
wrote in ''
Securities Analysis'' (1934): "The prime purpose of a business corporation is to pay dividends to its owners. A successful company is one that can pay dividends regularly and presumably increase the rate as time goes on."
Other studies indicate that divided-paying stocks tend to offer superior long-term performance due to a variety of factors, such as dividends being associated with
value stocks
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. The various forms of value investing derive from the investment philosophy first taught by Benjamin Graham ...
, with profitable companies exhibiting high levels of
free cashflow
In corporate finance, free cash flow (FCF) or free cash flow to firm (FCFF) is the amount by which a business's operating cash flow exceeds its working capital needs and expenditures on fixed assets (known as capital expenditures). It is that porti ...
and with mature, unfashionable companies that are overlooked by many investors and thus an effective
contrarian strategy.
Shareholders in companies that pay little or no cash dividends can reap the benefit of the company's profits when they sell their shareholding, or when a company is wound down and all assets
liquidated
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
and distributed amongst shareholders.
Tax implications
Taxation of dividends is often used as justification for retaining earnings, or for performing a
stock buyback, in which the company buys back stock, thereby increasing the value of the stock left outstanding.
When dividends are paid, individual shareholders in many countries suffer from
double taxation
Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).
Double liability may be mitigated i ...
of those dividends:
# the company pays income tax to the government when it earns any income, and then
# when the dividend is paid, the individual shareholder pays income tax on the dividend payment.
In many countries, the tax rate on dividend income is lower than for other forms of income to compensate for tax paid at the corporate level.
A capital gain should not be confused with a dividend. Generally, a capital gain occurs where a capital asset is sold for an amount greater than the amount of its cost at the time the investment was purchased. A dividend is a parsing out a share of the profits, and is taxed at the dividend tax rate. If there is an increase of value of stock, and a shareholder chooses to sell the stock, the shareholder will pay a tax on capital gains (often taxed at a lower rate than
ordinary income
Under the United States Internal Revenue Code, the ''type'' of income is defined by its character. Ordinary income is usually characterized as income other than long-term capital gains. Ordinary income can consist of income from wages, salaries ...
). If a holder of the stock chooses to not participate in the buyback, the price of the holder's shares could rise (as well as it could fall), but the tax on these gains is delayed until the sale of the shares.
Certain types of specialized investment companies (such as a
REIT
A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping ce ...
in the U.S.) allow the shareholder to partially or fully avoid double taxation of dividends.
Other corporate entities
Cooperatives
Cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...
businesses may retain their earnings, or distribute part or all of them as dividends to their members. They distribute their dividends in proportion to their members' activity, instead of the value of members' shareholding. Therefore, co-op dividends are often treated as pre-tax
expenses
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...
. In other words, local tax or accounting rules may treat a dividend as a form of customer rebate or a staff bonus to be deducted from turnover before profit (
tax profit Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
or
operating profit
In accounting and finance, earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses.
Operating income and op ...
) is calculated.
Consumers' cooperative
A consumers' co-operative is an enterprise owned by consumers and managed democratically and that aims at fulfilling the needs and aspirations of its members. Such co-operatives operate within the market system, independently of the state, as a fo ...
s allocate dividends according to their members' trade with the co-op. For example, a
credit union
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit organization, nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including depo ...
will pay a dividend to represent
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
on a saver's deposit. A retail co-op store chain may return a percentage of a member's purchases from the co-op, in the form of cash, store credit, or
equity
Equity may refer to:
Finance, accounting and ownership
* Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the dif ...
. This type of dividend is sometimes known as a patronage dividend or patronage refund, as well as being informally named ''divi'' or ''divvy''.
Producer cooperatives, such as
worker cooperative
A worker cooperative is a cooperative owned and Workers' self-management, self-managed by its workers. This control may mean a firm where every worker-owner participates in decision-making in a democratic fashion, or it may refer to one in which ...
s, allocate dividends according to their members' contribution, such as the hours they worked or their salary.
Trusts
In
real estate investment trust
A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping cente ...
s and
royalty trust
A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high perc ...
s, the distributions paid often will be consistently greater than the company earnings. This can be sustainable because the accounting earnings do not recognize any increasing value of real estate holdings and resource reserves. If there is no economic increase in the value of the company's assets then the excess distribution (or dividend) will be a
return of capital
Return of capital (ROC) refers to principal payments back to "capital owners" (shareholders, partners, unitholders) that exceed the growth (net income/taxable income) of a business or investment. It should not be confused with Rate of Return (ROR ...
and the
book value
In accounting, book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset. Tra ...
of the company will have shrunk by an equal amount. This may result in
capital gain
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.
...
s which may be taxed differently from dividends representing distribution of earnings.
The distribution of profits by other forms of
mutual organization
A mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality and governed by private law. Unlike a true cooperative, members usually do not contribute to ...
also varies from that of
joint-stock companies
A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...
, though may not take the form of a dividend.
In the case of
mutual insurance
A mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividend distributions or re ...
, for example, in the United States, a distribution of profits to holders of
participating life policies is called a ''dividend''.
These profits are generated by the investment returns of the insurer's general account, in which premiums are invested and from which claims are paid. The participating dividend may be used to decrease premiums, or to increase the cash value of the policy.
Some life policies pay nonparticipating dividends.
As a contrasting example, in the United Kingdom, the surrender value of a
with-profits policy
A with-profits policy (Commonwealth) or participating policy (U.S.) is an insurance contract that participates in the profits of a life insurance company. The company is often a mutual life insurance company, or had been one when it began its w ...
is increased by a ''bonus'', which also serves the purpose of distributing profits.
Life insurance
Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...
dividends and bonuses, while typical of mutual insurance, are also paid by some joint stock insurers.
Insurance dividend payments are not restricted to life policies. For example, general insurer
State Farm
State Farm Insurance is a large group of mutual insurance companies throughout the United States with corporate headquarters in Bloomington, Illinois.
Overview
State Farm is the largest property and casualty insurance provider, and the la ...
Mutual Automobile Insurance Company can distribute dividends to its vehicle insurance policyholders.
See also
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Citizen's dividend
Citizen's dividend is a proposed policy based upon the Georgist principle that the natural world is the common property of all people. It is proposed that all citizens receive regular payments (dividends) from revenue raised by leasing or taxing ...
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Common stock dividend
A common stock dividend is the dividend paid to common stock owners from the profits of the company. Like other dividends, the payout is in the form of either cash or stock. The law may regulate the size of the common stock dividend particularly ...
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CSS dividend policy
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Direct debit dividend contributions Direct Debit Dividend Contributions also known as 3DC are payments made towards stockholder, shareholders for stock, shares which have been issued on credit.
Issuing stock on credit is considered appropriate when a Stakeholder (corporate), Stakehol ...
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Dividend units In finance, a dividend unit is the right to receive payments equal to actual dividends paid on a share or a stock. A dividend unit can be granted for a term, for example 20 years from the date of grant.
In the United States, dividend units are so ...
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Dividend yield
The dividend yield or dividend–price ratio of a share is the dividend per share, divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant ...
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Employee stock ownership
Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Em ...
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Liquidating dividend A liquidating distribution (or liquidating dividend) is a type of nondividend distribution made by a corporation or a partnership to its shareholders during its partial or complete liquidation. Liquidating distributions are not paid solely out of th ...
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List of companies paying scrip dividends
This is a list of publicly traded Company, companies that offer their shareholders the option to be paid with scrip dividends.
References
{{DEFAULTSORT:Companies paying scrip dividends
Dividends
Corporation-related lists ...
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Qualified dividend
Qualified dividends, as defined by the United States Internal Revenue Code, are ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate rather than at higher tax rate for an individual's ordinary in ...
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Social dividend
The social dividend is the return on the capital assets and natural resources Social ownership, owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividen ...
References
External links
Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends– U.S. Securities and Exchange Commission
Dividend Policyfrom studyfinance.com at the
University of Arizona
The University of Arizona (Arizona, U of A, UArizona, or UA) is a public land-grant research university in Tucson, Arizona. Founded in 1885 by the 13th Arizona Territorial Legislature, it was the first university in the Arizona Territory.
T ...
The new U.S. dividend tax cut trapsfrom Tennessee CPA Journal, Nov. 2004
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Shareholders
Dutch inventions
Corporate development