What is a dividend?
A dividend is a special payment, usually paid at the end of each quarter, and is based on the profits made by the corporation during that quarter. Dividends are usually paid in cash or additional stock to the shareholders. This is a shareholder’s reward for investing in the corporation. It is much the same as interest on a loan except that the dividend is based on the income of the corporation, and may or may not be a regular payment. Also, dividends are not deductible by the corporation while interest payments are. Some owners pay themselves a small salary to minimize FICA withholding, and pay themselves a quarterly dividend instead.
A dividend is a payment made to shareholders based on the number of shares they own. Payment can be in the form of cash (most common), new shares or even as an ownership interest in other corporate property. The amount of the dividend payment is generally a reflection of the corporation’s after-tax earnings (profit). Whether or not a dividend payment is made to shareholders is decided by the directors of the corporation.
