Meaning of Dividend. What is meaning of Dividend ?

The word "dividend" comes from the Latin word "dividendum" ("thing to be divided").

The term 'dividend' refers to that portion of profit (after tax) which is distributed among the owners/shareholders of the firm and the profit which is not distributed is known as retained earnings. Dividend decisions are an important aspect of corporate financial policy since they can have an effect on the availability as well as the cost of capital. It is a decision made by the Board of Directors of a company and approved by the shareholders at the general meeting. Shareholders do not have the right to ask for divided nor increase in the rate of dividend as the Board has the unfettered right. However, this power cannot be used arbitrarily or advantageously by the Board and therefore the Board has to evolve a dividend policy that maximizes shareholders wealth. Since dividend decision relates to the amount and timing of any cash payments made to the company’s stakeholders, the decision is an important one for the firm as it may influence its capital structure and stock price. In addition, the decision may determine the amount of taxation that shareholders have to pay.

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of this reinvestment as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.

A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of after-tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholders' equity section on the company's balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. Cooperatives, on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense.