cash dividend

Cash Dividend

Money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors, and are taxable income to the recipients.

Notes:

Long term investors who want to maximize their gains should consider reinvesting the dividends. Most brokers offer a choice as to whether you wish to reinvest or take cash dividends.

See also: Cash, Dividend, Stockholders

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Cash dividend

A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

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cash dividend

A dividend paid in cash (that is, by check) to holders of a firm's stock. Although the amount is usually based on profitability, it may temporarily exceed net income. Certain legal and contractual restrictions may limit a firm's ability to pay cash dividends.

What are the advantages or disadvantages of investing in firms that pay large cash dividends?

Income investors look for corporations that pay consistent, large dividends. Income can be predicted by purchasing one group of stocks that pays dividends quarterly beginning in January, one beginning in February, and one in March. Growth investors or investors in a high tax bracket may not want these stocks. They favor companies that forgo dividends to grow internally. Since dividends on stocks are taxable when paid, highly taxed investors postpone taxes by holding growth stocks and selling for gains later, rather than holding dividend paying stocks. Capital gains taxes may be lower than the ordinary tax rates on dividends.

Jeffrey S. Levine, CPA, MST, Alkon & Levine, PC, Newton, MA