Dividends

Definition

Dividends are portions of a company's earnings distributed to shareholders, usually in the form of cash or additional shares. They provide an incentive for investors and represent a share of corporate profits.

5 Must Know Facts For Your Next Test

1. Dividends are usually declared by the company's board of directors.
2. They can be paid quarterly, annually, or at other regular intervals.
3. The payment of dividends affects both the balance sheet and the income statement.
4. Not all companies pay dividends; many reinvest earnings back into the business.
5. Dividend payments reduce retained earnings on the balance sheet.

Review Questions

• How do dividend payments affect a company's retained earnings?
• Who typically declares and approves dividend payments within a company?
• Why might some companies choose not to pay dividends?

Related terms

Retained Earnings:

The portion of net income that is retained by the company rather than distributed to shareholders as dividends.

Shareholder Equity: The residual interest in the assets of the entity after deducting liabilities.

Earnings Per Share (EPS):

A financial metric indicating the profitability of a company calculated as net income divided by outstanding shares.