What is Dividend Declaration?

1421 reads · Last updated: December 5, 2024

Dividend Declaration refers to the formal announcement by a company's board of directors that a dividend will be paid to shareholders. A dividend is a portion of a company's earnings distributed to shareholders in the form of cash or additional shares. The declaration typically includes the amount of the dividend, the payment date, and the record date (the cut-off date to determine eligible shareholders). This process signifies the transfer of a portion of the company's retained earnings to shareholders and is often seen as an indicator of the company's financial health and profitability.

Definition

Dividend Declaration, also known as dividend disclosure, refers to the decision formally announced by a company's board of directors to distribute dividends to shareholders. Dividends are a portion of a company's profits distributed to shareholders in the form of cash or stock. A dividend declaration typically includes the amount of the dividend, the payment date, and the record date for shareholders (i.e., the ex-dividend date). This process signifies that a portion of the company's profits will be transferred from retained earnings to shareholders and is often seen as a symbol of the company's financial health and profitability.

Origin

The concept of dividend declaration originated in the early stages of corporate governance when companies began to recognize the importance of returning profits to shareholders through dividends. With the development of corporate law, dividend declaration became a standard procedure in corporate financial management. Historically, the formalization of dividend declarations can be traced back to the 19th century when companies started regularly paying dividends to shareholders as a means to attract investors.

Categories and Features

Dividend declarations can be categorized into cash dividends and stock dividends. Cash dividends are profit distributions paid to shareholders in cash, typically used to provide a steady cash flow to shareholders. Stock dividends are dividends paid in the form of additional shares, usually to retain cash for company expansion. The advantage of cash dividends is that they provide immediate cash returns to shareholders, while stock dividends help shareholders increase their shareholding proportion. The choice between the two usually depends on the company's financial condition and strategic goals.

Case Studies

A typical case is Apple Inc., which announced the resumption of dividend payments in 2012, ending a 17-year dividend hiatus. Apple's dividend declaration was seen as a symbol of its financial strength and attracted a large number of investors. Another example is Coca-Cola, known for its stable dividend payments. Coca-Cola's dividend policy has helped it maintain good investor relations in the market and enhance shareholder confidence.

Common Issues

Investors may encounter issues such as concerns about the sustainability of dividends and the impact of changes in dividend policy on stock prices when applying dividend declarations. A common misconception is that a high dividend yield is always good, but in reality, a high dividend yield may reflect a lack of growth opportunities or financial pressure on the company. Therefore, investors should consider the company's overall financial condition and market environment comprehensively.

Suggested for You

Refresh
buzzwords icon
Liquidity Trap
A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth.The term was first used by economist John Maynard Keynes, who defined a liquidity trap as a condition that can occur when interest rates fall so low that most people prefer to let cash sit rather than put money into bonds and other debt instruments. The effect, Keynes said, is to leave monetary policymakers powerless to stimulate growth by increasing the money supply or lowering the interest rate further.A liquidity trap may develop when consumers and investors keep their cash in checking and savings accounts because they believe interest rates will soon rise. That would make bond prices fall, and make them a less attractive option.Since Keynes' day, the term has been used more broadly to describe a condition of slow economic growth caused by widespread cash hoarding due to concern about a negative event that may be coming.
2 K learned

Liquidity Trap

A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth.The term was first used by economist John Maynard Keynes, who defined a liquidity trap as a condition that can occur when interest rates fall so low that most people prefer to let cash sit rather than put money into bonds and other debt instruments. The effect, Keynes said, is to leave monetary policymakers powerless to stimulate growth by increasing the money supply or lowering the interest rate further.A liquidity trap may develop when consumers and investors keep their cash in checking and savings accounts because they believe interest rates will soon rise. That would make bond prices fall, and make them a less attractive option.Since Keynes' day, the term has been used more broadly to describe a condition of slow economic growth caused by widespread cash hoarding due to concern about a negative event that may be coming.

buzzwords icon
Liquidity Crisis
A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously.In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies.
1 K learned

Liquidity Crisis

A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously.In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies.

buzzwords icon
Liquidity Event
A liquidity event is an acquisition, merger, initial public offering (IPO), or other action that allows founders and early investors in a company to cash out some or all of their ownership shares.A liquidity event is considered an exit strategy for an illiquid investment or equity with little or no market to trade on. Founders of a firm push toward a liquidity event, and investors like venture capital (VC) firms, angel investors, or private equity firms expect one within a reasonable amount of time after initially investing capital.
1 K learned

Liquidity Event

A liquidity event is an acquisition, merger, initial public offering (IPO), or other action that allows founders and early investors in a company to cash out some or all of their ownership shares.A liquidity event is considered an exit strategy for an illiquid investment or equity with little or no market to trade on. Founders of a firm push toward a liquidity event, and investors like venture capital (VC) firms, angel investors, or private equity firms expect one within a reasonable amount of time after initially investing capital.

buzzwords icon
Liquid Alternatives
Liquid alternative investments (or liquid alts) are mutual funds or exchange-traded funds (ETFs) that aim to provide investors with diversification and downside protection through exposure to alternative investment strategies. These products' selling point is that they are liquid, meaning that they can be bought and sold daily, unlike traditional alternatives which offer monthly or quarterly liquidity. They come with lower minimum investments than the typical hedge fund, and investors don't have to pass net-worth or income requirements to invest. Critics argue that the liquidity of so-called liquid alts will not hold up in more trying market conditions; most of the capital invested in liquid alts has entered the market during the post-financial crisis bull market. Critics also contend that the fees for liquid alternatives are too high. For proponents, though, liquid alts are a valuable innovation because they make the strategies employed by hedge funds accessible to retail investors.
813 learned

Liquid Alternatives

Liquid alternative investments (or liquid alts) are mutual funds or exchange-traded funds (ETFs) that aim to provide investors with diversification and downside protection through exposure to alternative investment strategies. These products' selling point is that they are liquid, meaning that they can be bought and sold daily, unlike traditional alternatives which offer monthly or quarterly liquidity. They come with lower minimum investments than the typical hedge fund, and investors don't have to pass net-worth or income requirements to invest. Critics argue that the liquidity of so-called liquid alts will not hold up in more trying market conditions; most of the capital invested in liquid alts has entered the market during the post-financial crisis bull market. Critics also contend that the fees for liquid alternatives are too high. For proponents, though, liquid alts are a valuable innovation because they make the strategies employed by hedge funds accessible to retail investors.

buzzwords icon
Zero-Coupon Convertible
A zero-coupon convertible is a fixed income instrument that combines the features of a zero-coupon bond with that of a convertible bond.Due to the zero-coupon feature, the bond pays no interest and is therefore issued at a discount to par value, while the convertible feature means that bondholders have the option to convert bonds into common stock of the issuer at a certain conversion price.
1 K learned

Zero-Coupon Convertible

A zero-coupon convertible is a fixed income instrument that combines the features of a zero-coupon bond with that of a convertible bond.Due to the zero-coupon feature, the bond pays no interest and is therefore issued at a discount to par value, while the convertible feature means that bondholders have the option to convert bonds into common stock of the issuer at a certain conversion price.

buzzwords icon
Zero-Investment Portfolio
A zero-investment portfolio is a collection of investments that has a net value of zero when the portfolio is assembled, and therefore requires an investor to take no equity stake in the portfolio. For instance, an investor may short sell $1,000 worth of stocks in one set of companies, and use the proceeds to purchase $1,000 in stock in another set of companies.
1 K learned

Zero-Investment Portfolio

A zero-investment portfolio is a collection of investments that has a net value of zero when the portfolio is assembled, and therefore requires an investor to take no equity stake in the portfolio. For instance, an investor may short sell $1,000 worth of stocks in one set of companies, and use the proceeds to purchase $1,000 in stock in another set of companies.

© 2026 Longbridge｜Disclaimer