Cash Dividend

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

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Cash Dividend

A share in the profit of a publicly-traded company or another investment vehicle that is distributed to each shareholder in cash in proportion to the percentage of ownership in the company each shareholder has. Cash dividends contrasts with automatic dividend reinvestment, whereby companies and investment vehicles enter into agreements with shareholders to automatically buy more shares with dividends. They also differ from dividends that are paid in the form of stocks or bonds. Companies tend to pay more in cash dividends when they do not wish to reinvest profits into expanded operations. See also: Plowback ratio.