Are dividends exclusively a part of earnings?

Question

Are stock dividends exclusively part of earnings? Or are there cases when companies pay dividends despite zero or low earnings?

score 19 · Accepted Answer · edited Jul 16 '19 at 12:46

19

In the end it comes out of earnings, but the earnings don't have to be made that financial year. So yes you can pay dividends despite negative, zero or low earnings in a specific year. This can be a strategic consideration of the company called dividend continuity.

This is based on German Law (§ 150 AktG), but should be applicable elsewhere as well.

edited Jul 16 '19 at 12:46

Glorfindel

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answered Jul 15 '19 at 07:37

Thomas

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score 18 · Answer 2 · answered Jul 15 '19 at 08:52

Cash dividends are paid from the company's cash on hand. It doesn't matter where that money comes from. You might have earned it that year, previous years, or (rarely and foolishly) borrowed it or retained it from a stock offering, etc.

A cash dividend is funds or money paid to stockholders generally as part of the corporation's current earnings or accumulated profits.

score 1 · Answer 3 · answered Oct 25 '19 at 22:51

Dividends are actually paid from Retained earnings via Cash so the process is a step or two removed from direct earnings. This helps to explain how companies can pay a dividend despite “zero or low earnings” or even negative earnings (although this is probably not clever).

Simply, a company can pay a dividend providing it has the cash to pay it.

The decision is up to the board of directors and any number of factors may enter into their reasoning.

Are dividends exclusively a part of earnings?

3 Answers3