Online Encyclopedia

DIVIDEND (Lat. dividendum, a thing to...

Online Encyclopedia
Originally appearing in Volume V08, Page 332 of the 1911 Encyclopedia Britannica.
Spread the word: del.icio.us del.icio.us it!
DIVIDEND (Lat. dividendum, a thing to be divided), the net profit periodically divisible among the proprietors of a joint-stock company in proportion to their respective holdings of its capital. Dividend is not interest, although the word dividend is frequently applied to payments of interest; and a failure to pay dividends to shareholders does not, like a failure to pay interest on borrowed money, lay a company open to being declared bankrupt. In bankruptcy a dividend is the proportionate share of the proceeds of the debtor's estate received by a creditor. In England, the Companies Act 1862 provided that no dividend should be payable except out of the profits arising from the business of the company, but, in the case of companies incorporated by special act of parliament for the construction of railways and other public works which cannot be completed for a considerable time, it is sometimes provided that interest may during construction be paid to the subscribers for shares out of capital. Dividends (excluding occasional distributions in the form of shares) are ordinarily payable in cash. Most companies divide their capital into at least two classes, called " preference " shares and " ordinary " shares, of which the former are entitled out of the profits of the company to a preferential dividend at a fixed rate, and the latter to whatever remains after payment of the preferential dividend and any fixed charges. Before, however, a dividend is paid, a part of the profits is often carried to a " reserve fund." The dividend on preference shares is either " cumulative " or contingent on the profits of each separate year or half year. When cumulative, if the profits of any one year are insufficient to pay it in full, the deficiency has to be made good out of subsequent profits. A cumulative preferential dividend is sometimes said to be " guaranteed," and preferential dividends payable by all English companies registered under the Companies Acts 1862 to 19o8 are cumulative unless stipulated to be otherwise. Certain public companies are forbidden by parliament to pay dividends in excess of a prescribed maximum rate, but this restriction has been happily modified in some instances, notably in the case of gas companies, by the institution of a sliding scale, under which a gas company may so regulate the price of gas to be charged to consumers that any reduction of an authorized standard price entitles the company to make a proportionate increase of the authorized dividend, and any increase above the standard price involves a proportionate decrease of dividend. Dividends are usually declared yearly or half-yearly; and before any dividend can be paid it is, as a rule, necessary for the directors to submit to the shareholders, at a general meeting called for the purpose, the accounts of the company, with a report by the directors on its position and their recommendation as to the rate of the proposed dividend. The articles of association of a company usually provide that the shareholders may accept the director's recommendation as to dividend or may declare a lower one, but may not declare a higher one than the directors recommend. Directors frequently have power to pay on account of the dividend for the year, without consulting the shareholders, an "interim dividend," which on ordinary shares is generally at a much lower rate than the final or regular dividend. An exceptionally high dividend is often distributed in the shape of a dividend at the usual rate supplemented by an additional dividend or " bonus." Payment of dividends is made by means of cheques sent by post, called " dividend warrants." All dividends are subject to income-tax, and by most companies dividends are paid " less income-tax," in which case the tax is deducted from the amount of dividend payable to each proprietor. When paid without such deduction a dividend is said to be " free of income-tax." In the latter case, however, the company has to make provision for payment of the tax before declaring the dividend, and the amount of its divisible profits and the rate of dividend which it is able to declare are consequently to that extent reduced. In respect of consols and certain other securities, holders of amounts of less than £r000 may instruct the Bank of England or Bank of Ireland to receive and invest their dividends. With few exceptions, the prices of securities dealt in on the London Stock Exchange include any accruing dividend not paid up to the date of purchase. At a certain day, after the dividend is declared, the stock or share is dealt in on the Stock Exchange, as ex dividend (or "x. d."), which means that the current dividend is paid not to the buyer but to the previous holder, and the price of the stock is lower to that extent. The expression " cum dividend " is used to signify that the price of the security dealt in includes a dividend which, in the absence of any stipulation, might be supposed to belong to the seller of the security. On the New York Stock Exchange the invariable practice is to sell stock with the " dividend on " until the company's books are closed, after which it is usually sold " ex dividend." (S. D. H.)
End of Article: DIVIDEND (Lat. dividendum, a thing to be divided)
[back]
DIVIDE
[next]
DIVIDIVI

Additional information and Comments

There are no comments yet for this article.
» Add information or comments to this article.
Please link directly to this article:
Highlight the code below, right click and select "copy." Paste it into a website, email, or other HTML document.