The amount of a company's profits that the board of directors decides to distribute to ordinary shareholders. It is usually expressed either as a percentage of the nominal value of the ordinary share capital, or as an absolute amount per share . A dividend is only the same as a yield if the shares stand at their nominal value. Some shareholders may not have bought their shares at par value and might have paid, say, 50p each for them, in which case the yield would not be 10 but 5 per cent. Dividends are declared at general meetings of the shareholders.
Interim dividends are part payments of the annual dividend made during the year.
Dividends are paid out of profits for the current year or, if profits are inadequate but the directors consider that a dividend is justified, out of reserves from profits of previous years. The profits after tax from which dividends are paid are those after payments to holders of preference shares and debentures have been allowed for, the balance being split between dividends and reserves. There has been much discussion of whether the rate of investment could be raised if companies paid out fewer dividends, as that would leave more cash to invest. All rights reserved.