Series 79: A1.5.3. Dividends

A1.5.3. Dividends

A dividend is a payment of a portion of a company’s earnings to its shareholders, usually paid quarterly in the form of cash (a cash dividend) or additional shares (a stock dividend, although this term is sometimes also used to refer to dividends in general). Preferred shares almost always come with the right to the payment of cash dividends at specified times, typically quarterly. Unlike with bonds, dividend payment is not guaranteed, but preferred shareholders are entitled to receive dividends before any dividends are paid to common shareholders. The directors of a corporation may also declare dividends for common shareholders, but only after preferred shareholders have been paid. Instead, common shareholders’ primary reward comes in the form of capital gains if the value of the stock rises, and they risk capital losses if the value declines.

If an issuer fails to pay dividends when due, the rights of preferred shareholders depend on whether the stock is cumulative preferred stock (which it usually is). In that case, unpaid d