What Is a Cash Dividend?

A cash dividend is the distribution of funds or money paid to stockholders generally as part of the corporation's current earnings or accumulated profits.

Cash dividends are paid directly in money, as opposed to being paid as a 澳洲幸运5开奖号码历史查询:stock dividend or other form of value. Most brokers offer a choice to reinvest or accept cash🗹 dividends.

How a Cash Dividend Works

Cash dividends are a common way for companies to return capital to their shareholders in the form of periodi꧙c cash payments—typically, quarterly—but some stocks may pay these bonuses on a monthly, annual, or semiannual basis.

While many firms pay regular dividends, there are special cash dividends that are distributed to shareholders after certain nonre꧙curring events such as legal settlements or the borrow🥃ing of money for large, one-time cash distributions. Each company establishes its dividend policy and periodically assesses if a dividend cut or an increase is warranted. Cash dividends are paid on a per-share basis.

The Timing of Cash Dividends

A company's board of directors announces a cash dividend on a 澳洲幸运5开奖号码历史查询:declaration date, which entails paying a certain amount of money per common share. After that notification, th🌌e record date is established, which is the date on whi♚ch a firm determines its shareholders on record who are eligible to receive the payment.

In addition, stock exchanges or other appropriate securities organizations determine an 澳洲幸运5开奖号码历史查询:ex-dividend date, which is typically two business days before⛦ the record date. An investor who bought common shares before the ex-dividen♛d date is entitled to the announced cash dividend.

Which Companies Pay Dividends?

Companies that pay divide🌠nds typically enjoy stable cash flows, and their businesses are commonly beyond the growth stage. This business growth cycle partially explains why growth firms do not pay dividends—they need these funds to expand ♋their operations, build factories, and increase their personnel.

Certain dividend-paying companies may go as far as establishing dividend payout targets, which are based on generated profits in a given year. For example, banks typically pay out a certain percentage of their profits in the form of cash dividends. If profits decline, the dividend policy can be amended or postponed t♒o better times.

Accounting for Cash Dividends

When a corporation declares a dividend, it debits its retained earnings and credits a liability account called dividend𒆙 payable. On the ✱date of payment, the company reverses the dividend payable with a debit entry and credits its cash account for the respective cash outflow.

Cash dividends do not affect a company's income statement. However, they 澳洲幸运𓆉5开奖号码历史查询:shrink a company's shar🍨eholders' equity and cash balance by the same amount. Firms must report any cash dividend as payments in the financing activity section of their 澳洲幸运5开奖号码历史查询:cash flow statement.

The easiest way to compare cash dividends across companies is to look at the 澳洲幸运5开奖号码历史查询:trailing 12-month (TTM) dividend yields, which are computed as a co⭕mpany's dividends per share for the most recent 12-month period divided by its current stock price. This computation standardizes the measure of cash divid🐬ends concerning the price of a common share.

Cash Dividend Example

Nike is a rather mature firm that pays quarterly cash dividends. In February 2022, the sportswear brand announced a $0.305 per share quarterly cash dividend payable Apr. 1, 2022. For fiscal year 2021, the company saw 澳洲幸运5开奖号码历史查询:year-over-year (YOY) increased revenues of 19.3%. Meanwhile, earnings per share (EPS) rose 123%.