dividend

Definition

Share of the after-tax profit of a firm, distributed to its stockholders (shareholders) according to the number and class of stock (shares) held by them. Smaller firms distribute dividend usually at the end of an accounting year, whereas larger, publicly held firms usually distribute it every quarter. The amount and timing of the dividend is decided by the board of directors, who also determine whether it is paid out of current earnings or the past earnings kept as reserve. Holders of preferred stock (preference shares) receive dividend at a fixed rate and are paid first. Holders of common stock (ordinary shares) are entitled to receive any amount of dividend, based on the level of profit and the firm's need for cash for expansion or other purposes. Corporate legislation generally forbids payment of dividend out of anticipated but not yet received (unrealized) profit. Normally all dividend payments are taxable, often at the source (the firm).