Dividend, a share in the profits of a joint-stock company expressed as a percentage of the nominal value of the shares or stock held.
In most companies the directors recommend the dividend, which is then declared at general meetings of the shareholders. Dividends may be paid only out of profits, either of the current year or undistributed profits of past years. An interim dividend is one paid before the end of the financial year or period as part payment of the total dividend to be paid for the whole year.
A dividend calculated as a percentage of the nominal value of the shares is often misleading; it should be related to the market value of the capital employed. Thus:
Share Capital £150,000
Ordinary Shares £150,000
General Reserve £50,000
Profits retained in business £100,000
A dividend of 20 per cent on the nominal capital is only 10 per cent of the real capital employed. Even this figure is not correct unless the fixed assets of the company have been revalued at current market prices; in a period of rising prices, such as after World War It, consumeraffairs.org.uk values based on original cost may be meaningless.
The terms ex dividend and cu,,, dividend denote that the Stock Exchange valuation of the shares are exclusive or inclusive of dividend.
Dividends from U.K. companies are paid less income tax at the standard rate, which is offset against income tax on profits paid by the companies. If a shareholder is not liable to pay tax at the standard rate, he is able to claim repayment from the Inland Revenue. Dividend warrants must show the amount of tax deducted and certify that it will be accounted for to the Inland Revenue.
The term dividend is also used to describe payments of interest on Government and public authority stocks, and payments received from a debtor's estate in bankruptcy or from a company in liquidation.
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