dividend

The distribution of current or accumulated earnings to the shareholders of a corporation pro rata based on the number of shares owned. Dividends are usually issued in cash. However, they may be issued in the form of stock or property. The dividend on preferred shares is generally a fixed amount; however, on common shares the dividend varies depending on such things as the earnings and available cash of the corporation, as well as future plans for the acquisition of property and equipment by the corporation.

See also allocation of dividends.

Tax treatment. A nondeductible distribution to the shareholders of a corporation. A dividend constitutes gross income to the recipient if it is from the current or accumulated earnings and profits of the corporation.

See also dividend received deduction, infra.

@ accumulated dividend

A cumulative dividend which has not been paid when due.

+ accumulated dividend

Dividend due shareholder which has not been paid.

See accumulative dividends

- dividend (cumulative dividend)

@ asset dividend

Dividend paid in the form of an asset of the company; normally a product.

See property dividend, below.

@ bond dividend

Type of dividend distribution which is rare but one in which the shareholder receives bonds instead of scrip, property or money.

@ consent dividend

For purposes of avoiding or reducing the penalty tax on the unreasonable accumulation of earnings or the personal holding company tax, a corporation may declare a consent dividend. In a consent dividend no cash or property is distributed to the shareholders although the corporation obtains a dividends paid deduction. The consent dividend is taxed to the shareholders and increases the basis in their stock investment. IRC No. 565.

@ constructive dividend

A taxable benefit derived by a shareholder from his or her corporation although such benefit was not designated as a dividend. Examples include unreasonable compensation, excessive rent payments, bargain purchases of corporate property, and shareholder use of corporate property. The passthrough of undistributed taxable income (i.e., UTI) to the shareholders of a Subchapter S corporation sometimes is referred to as a constructive dividend. Constructive dividends generally are a problem limited to closely-held corporations. If a stockholder has an unqualified right to a dividend, such a dividend is called constructive for tax purposes though he does not actually receive it because it is subject to his demand and the corporation has set it aside for this purpose. Clark v. C.I.R., C.A.Fed., 266 F.2d 698.

@ cumulative dividend

A typical feature of preferred stock that requires any past-due preferred stock dividends to be paid before any common stock dividends can be paid. A dividend that if not paid annually (or periodically as provided in the stock certificate) will ultimately have to be paid before any common stock dividend can be paid. The arrearage is said to accumulate

+ cumulative dividend

If a dividend is passed, it must be paid to the preferred stockholders before the common stockholders receive their current dividend, and hence, the dividends accumulate in connection with this type of preferred stock.

Opp. non-cumulative dividend

@ deferred dividend

One declared, but due to be paid at some future date

@ deficiency dividend

Once the IRS has established a corporation's liability for the personal holding company tax in a prior year, the tax may be reduced or avoided by the issuance of a deficiency dividend under I.R.C. No. 547. The deficiency dividend procedure is not available in cases where the deficiency was due to fraud with intent to evade tax or to a willful failure to file the appropriate tax return [No. 547(g)]. Nor does the deficiency dividend procedure avoid the usual penalties and interest applicable for failure to file a return or pay a tax

@ dividend addition

Something added to the policy in the form of paid-up insurance, and does not mean unapportioned assets or surplus. The term does not refer to dividends added directly to the loan value. Anderson v. Liberty Life Ins. Co. of Topeka, 149 Kan. 447, 87 P.2d 499, 502.

@ ex-dividend

Term used by stock brokers, meaning that a sale of corporate stock does not carry with it the seller's right to receive his proportionate share of a dividend already declared and shortly payable.

See ex dividend.

@ nimble dividends

Dividends paid out of current earnings at a time when there is a deficit in earned surplus (or other financial account from which dividends may be paid). Some state statutes do not permit nimble dividends. These statutes require current earnings to be applied against prior deficits rather than being used to pay a current dividend.

@ passed dividend

Dividend not paid when due by company which has history of paying regular dividends.

@ preferred dividend

One paid on the preferred stock of a corporation. A dividend paid to one class of shareholders in priority to that paid to another.

@ property dividend

Consists of a portion of corporate property paid to shareholders instead of cash or corporate stock.

See asset dividend, above.

@ scrip dividend

One paid in scrip, or in certificates of the ownership of a corresponding amount of capital stock of the company thereafter to be issued. Dividend paid in a short term promissory note which, in effect, divides profits but enables the corporation to postpone actual distribution of cash. Billingham v. E. P. Gleason Mfg. Co., 101 A.D. 476, 91 N.Y.S. 1046.

+ scrip dividend

Type of deferred dividend commonly in the form of a promissory note which is redeemable in stock or cash at a future time.

See also dividend

@ stock dividend

A dividend paid in the form of stock rather than cash. A stock dividend is usually expressed as a percentage of the number of shares already held by the shareholder. A corporation normally elects to issue a stock dividend in order to conserve cash. The tax advantage of a stock dividend to a shareholder is that a stock dividend is taxable at the time of sale, while a cash dividend is taxable when received.

+ stock dividend

Distributing stock as a dividend. It is a proportional distribution of shares without payment of consideration to existing shareholders. If the dividend is common stock declared on common stock, the only result other than to reduce the value of each share of common and to maintain the proportionate interest of each stockholder is to transfer part of surplus to the stock account. To be distinguished from a cash dividend or a stock split.

See also dividend

@ unpaid dividend

Dividends declared by a corporation, but not yet paid. Unpaid dividends are a liability on the balance sheet of a corporation.

@ year-end dividend

Type of extra dividend paid at end of fiscal year with amount dependent on profits.

See also extra dividend, above

@ dividend income

Species of gross income derived from dividend distribution and subject to I.R.C. No.No. 61(aX7), 301(c)

@ dividend received deduction

A deduction allowed a corporate shareholder for dividends received from a domestic corporation. As a result of the Tax Reform Act of 1986, corporations are allowed an 80% deduction for dividends received in 1987, and a deduction of 70% for dividends received after 1987. However, if the corporation owns more than 80% of the stock of the distributing corporation, the deduction allowed is 80%. I.R.C. No.No. 243-246

@ dividend yield

The current annual dividend divided by the market price per share

@