Dividends Flashcards
Dividends
Distribution of cash or other property from a firm to its owners. They are a distribution of earnings, so they are not an expense.
Date of record
Cutoff date for the owners who will receive dividends. If you bought stock in the company after the date of record, no dividends for you.
Payment date
Date the dividends are actually paid out.
Dividends in arrears
Dividends that accumulate because they weren’t actually paid out during a period. However, no liability is recorded on dividends in arrears until dividends are declared.
Dividends reduce the owners’ equity account when paid.
Scrip dividends
When a firm declares dividends but doesn’t have the money to pay them. Essentially a note payable from the firm to the owners, and interest is paid on the note until the dividends are paid.
Liquidating dividends
When dividends are a return OF capital instead of a return ON capital
Usually happen in industries involving natural resources.
Stock dividends
When a firm pays dividends of additional stock in the company
Increases # of shares outstanding, but it doesn’t change ownership percentages, and it doesn’t reduce the firms owners equity. If it’s less than 25% of outstanding shares, then the dividend is capitalized at market value. If it’s more than or equal to 25% of outstanding shares, the stock is capitalized at par value.
Stock split
Simply doubles or triples the outstanding shares. R/E and common stock aren’t affected by a stock split
Allocation of Dividend Payments
Preferred shareholders receive any dividends in arrears they are owed.
Preferred shares holders receive the current period dividend
Common shareholders receive a matching amount which equals the preferred % * total par of common outstanding.
Preferred receive an additional percentage if any dividends remain
Common receive any remaining dividends after that.
Retained earnings
R/E = Income to date - dividends declared to date +/- other adjustments.
Keeping track of the earnings to date by a firm, and it’s not the same thing as cash. Not money sitting in a bank account somewhere.
Can be a separate statement in the financials or part of the Statement of Changes in Owners’ Equity.
Adjustments to retained earnings
Cumulative effect of an accounting principle change
The correction of an error that results in a prior period adjustment.
Book value per share
Common stockholders’s equity / # of common shares outstanding
Or
Total owners’ equity - preferred stock claims / # of common shares outstanding
