UK Accounting Glossary
A cash dividend is the distribution of a company’s profits to it’s shareholders. Although every company is unique, dividends are typically paid quarterly, and the amount is determined by the board of directors. Investors seeking the highest possible profits often reinvest their cash dividend back into the company. Many companies avoid giving a cash dividend because of the dividend tax. A dividend tax is a tax shareholders must pay on their cash dividend. Companies who do use a cash dividend choose to use one partly because it suggests the financial stability of their company and makes their stock more attractive to investors. Many companies will consistently increase their cash dividend, even if their earnings are low. They do this because a consistently increasing cash dividend suggests stability and continuous growth.
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This glossary post was last updated: 4th February 2020.