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A dividend is a distribution of
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
s by a
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), 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 ...

corporation
to its
shareholder A shareholder (in the United States often referred to as stockholder) of a is an or (such as another , a , a or ) that is registered by the corporation as the legal owner of of the of a or . Shareholders may be referred to as members of a ...
s. When a corporation earns a profit or surplus, it is able to pay a proportion 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 A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by priva ...
). 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 Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on orig ...
, the amount can be paid by the issue of further shares or by
share repurchase Share repurchase (or share buyback or stock buyback) is the re-acquisition by a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personali ...
. 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 dividend 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 * ...
). 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 law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue ...
, paying dividends is not an
expenseExpenditure is an outflow of money, or any form of Wealth, fortune in general, to another person or group as payment for an item, service, or other category of costs. For a leasehold estate, tenant, renting, rent is an expense. For students or parent ...
; 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, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a
special dividendA special dividend is a payment made by a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture of both, with a sp ...
to distinguish it from the fixed schedule dividends.
Cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomous The federal subject The federal subjects of Russia, also referred to as the subjects of the Russian Federation (russian: субъекты Российск ...
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 languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Republic, it became ...
word ''dividendum'' ("thing to be divided").


History

In financial history of the world, the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate A corporation is an organization—u ...

Dutch East India Company
(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).


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 A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a cus ...
or a printed paper
check Check or cheque, may refer to: Places * Check, Virginia Check is an unincorporated community in Floyd County, Virginia, Floyd County, Virginia, United States. Check is located on U.S. Route 221 northeast of Floyd, Virginia, Floyd. Check has a pos ...
. 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
expenseExpenditure is an outflow of money, or any form of Wealth, fortune in general, to another person or group as payment for an item, service, or other category of costs. For a leasehold estate, tenant, renting, rent is an expense. For students or parent ...
, but rather a deduction of
retained earnings The retained earnings (also known as plowback) of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by priva ...
. 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'', ''statemen ...
, but does appear on the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...

balance sheet
. 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, entertainm ...
because the total number of shares increases, lowering the price of each share, without changing the
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited compan ...
, or total value, of the shares held. (See also
Stock dilution In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities in ...
.) 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 languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Republic, it became ...
for "
in kind The term in kind (or in-kind) generally refers to goods, services, and transactions not involving money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms w ...
") 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 Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose leg ...
. 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 earningsEarnings are the net benefits of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single ...

earnings per share
: :Payout ratio = × 100 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 Corporate finance is the area of finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and i ...
. The free cash flow represents the company's available cash based on its operating business after investments: :Payout ratio = × 100


Dividend dates

A dividend that is declared must be approved by a company's
board of directors A board of directors is a group of people who jointly supervise the activities of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, W ...
before it is paid. For
public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
, 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 Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, retai ...
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 Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, mone ...
— 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

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 Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on orig ...
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 Though the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a tra ...
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 is an or (such as another , a , a or ) that is registered by the corporation as the legal owner of of the of a or . Shareholders may be referred to as members of a ...
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, or a ''Prélèvement à la source'', is income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by t ...
. 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. 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 A corporate tax, also called corporation tax or company tax, is a direct tax Though the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property a ...
system, wherein companies can attach franking credits 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 Wealth tax, capital taxes), or financial transaction (in the case of sales taxes). Double liability may be m ...
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.


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 Though the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a tra ...
.


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 capital, share (stock) price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overva ...
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 optionIn 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 options ...
early.


Criticism

Some believe that company profits are best re-invested in the company: research and development, capital investment, expansion, etc. 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. 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 Wealth tax, capital taxes), or financial transaction (in the case of sales taxes). Double liability may be m ...
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 The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Wash ...
). 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 Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minera ...
in the U.S.) allow the shareholder to partially or fully avoid double taxation of dividends. 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 (law), company is brought to an end in Canada, United Kingdom, Republic of Ireland, Ireland, Australia, New Zealand, and Italy, and many other countries. The assets and property of th ...
and distributed amongst shareholders. This, in effect, delegates the dividend policy from the board to the individual shareholder. Payment of a dividend can increase the borrowing requirement, or
leverage Leverage or leveraged may refer to: *Leverage (mechanics), mechanical advantage achieved by using a lever *Leverage (album), ''Leverage'' (album), a 2012 album by Lyriel *Leverage (dance), a type of dance connection *Leverage (finance), using giv ...
, of a company.


Other corporate entities


Cooperatives

Cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomous The federal subject The federal subjects of Russia, also referred to as the subjects of the Russian Federation (russian: субъекты Российск ...
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 Expenditure is an outflow of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or ve ...
. 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 An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A s ...
or
operating profit In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compar ...
) is calculated.
Consumers' cooperative Raunds Co-operative Society Limited was a consumer co-operative society based in Raunds, Northamptonshire, founded in 1891 A consumers' co-operative is an enterprise owned by consumers and managed democratically which aims at fulfilling the needs ...
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 financial cooperative, controlled by its members and operated on a not-for-profit basis. Credit unions generally provide services to members simila ...
will pay a dividend to represent
interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

interest
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 differe ...
. 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 Workers' self-management, owned and 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 m ...
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 building, office and apartment buildings, warehouses, hospitals ...
s and
royalty trust A royalty trust is a type of corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born ...
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 {{Unreferenced, date=February 2007 Return of capital (ROC) refers to 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 ...
and the
book value In accounting, book value is the value of an asset according to its 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 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 Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial an ...
s which may be taxed differently from dividends representing distribution of earnings. The distribution of profits by other forms of
mutual organization A mutual, mutual organization, or mutual society is an organization (which is often, but not always, a company (law), company or business) based on the principle of mutuality and governed by private law. Unlike a true cooperative, members usually ...
also varies from that of
joint-stock companies A joint-stock company is a business entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and be ...
, though may not take the form of a dividend. In the case of
mutual insurance#redirect Mutual insuranceA mutual insurance company is an insurance Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An en ...
, 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 of Nations, Commonwealth) or participating policy (United States, U.S.) is an insurance contract that participates in the Profit (accounting), profits of a life insurance company. The company is often a Mutual i ...
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 The Commonwealth of Nations, generally known simply as the Commonwealth, is a political association of 54 member states, almost all of which are former territorial ...
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 is a large group of insurance companies throughout the United States with corporate headquarters in Bloomington, Illinois. Overview State Farm is the largest property and casualty insurance provider in the United States. It is al ...
Mutual Automobile Insurance Company can distribute dividends to its vehicle insurance policyholders.


See also

*
Citizen's dividend Citizen's dividend is a proposed policy based upon the Georgist Georgism, also called in modern times geoism and known historically as the single tax movement, is an economic ideology holding that, although people should own the value they pro ...
*
Common stock dividend A common stock dividend is the dividend 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), n ...
* CSS dividend policy * Dividend units *
Dividend yield The dividend yield or dividend–price ratio of a share is the dividend A dividend is a distribution of profits by a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as ...
*
Employee stock ownership Employee stock ownership, or employee share ownership, is where a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a m ...
*
Liquidating dividendA liquidating distribution (or liquidating dividend) is a type of nondividend distribution made by a corporation or a partnership to its shareholder A shareholder (in the United States often referred to as stockholder) of a corporation A cor ...
*
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 ...
*
Qualified dividend Qualified dividends, as defined by the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It co ...


References


External links


Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends
– U.S. Securities and Exchange Commission


Dividend Policy
from studyfinance.com at the
University of Arizona The University of Arizona (Arizona, U of A, UArizona, or UA) is a Public university, public Land-grant university, land-grant research university in Tucson, Arizona. Founded in 1885 by the 13th Arizona Territorial Legislature, it was the first ...

The new U.S. dividend tax cut traps
from Tennessee CPA Journal, Nov. 2004 {{Authority control Shareholders Dutch inventions