What is a dividend?
When a company makes a profit, it can reinvest it or return part of it to the owners. A dividend is that return. Dividends are typically paid quarterly, half-yearly or annually, and are declared as an amount per share.
Types of dividends
- Cash dividends: the most common, paid by bank transfer.
- Stock (scrip) dividends: additional shares instead of cash.
- Special dividends: one-off payments, often after an unusually good year or asset sale.
- Interim and final dividends: paid during the year and after year-end results.
Key dates
- Declaration date: the board announces the dividend.
- Ex-dividend date: buyers on or after this date don't receive the dividend.
- Record date: shareholders on the register are entitled.
- Payment date: cash is paid.
Accounting entries
- On declaration: debit [retained earnings](/glossary/retained-earnings), credit dividends payable.
- On payment: debit dividends payable, credit bank.
Dividends are not an expense in the income statement; they reduce equity.
Legal limits
In most countries a company can only pay dividends out of distributable profits and must remain solvent afterwards. Paying an unlawful dividend can make directors personally liable.
Key ratios
- Dividend yield = Annual dividend per share ÷ Share price
- Payout ratio = Dividends ÷ Net income