Dividend

Dividend, in corporation finance, a fund appropriated out of the profits of a corporation and distributed among its stockholders; also the share of the fund received by a stockholder. Dividends are usually declared periodically (quarterly, semi-annually, or annually) by the directors of a corporation. The action of a board of directors with respect to the declaration or nondeclaration of dividends is usually final and conclusive upon the stockholders and is subject to review by the courts only in the event that the action is arbitrary or capricious.

Dividends are distributed on a proportional basis; the fractional share of the total dividend received by stockholders is equal to the proportional share of the stocks owned by them. Holders of the preferred stock of a company generally have a prior right to the payment of dividends over holders of common stock, and if their stock so provides, are paid at a fixed periodic rate. Preferred dividends may be cumulative or noncumulative. Cumulative dividends are those that, if not paid for one or more periods, constitute charges on the profits of succeeding periods and must be paid at a future date before dividends may be distributed on common stock. Noncumulative dividends, if omitted, do not constitute charges on future profits. Dividends may take the form of additional shares of stock or of the right to purchase stock for a fixed sum per share; such dividends are called stock dividends and rights.

The term dividend is applied also to the assets of a bankrupt or insolvent business that are distributed among its creditors during the course of its liquidation. The term is used in insurance to signify the sum appropriated out of profits for distribution among policyholders whose policies so provide; such dividends may be used to reduce the next premium.