What is a Dividend Requirement?
Dividend requirements are the annual earnings that a company must generate and reserve in order to make dividend payments to investors holding preferred stock. The exact amount of earnings set aside for this purpose will vary, depending on the total revenue generated, the outstanding debts of the company, and the formula associated with calculating the dividends earned per share of stock. Corporations tend to use a couple of different methods to ensure the dividend requirement is met for each calendar or fiscal year. For smaller companies that offer preferred stock, the process of meeting the dividend requirement usually involves creating a special account to house the funds until it is time to issue dividend payments. The advantage to this approach is that it allows the company to incrementally accrue the total amount required to honor the obligation. In many cases, the company will deposit the funds each month after applicable expenses have been paid and the net profit for the period
