Definition
The term “Dividend Payable” is used in finance to describe a liability that a company has agreed to pay to its shareholders. These are the profits a firm chooses to distribute to its shareholders as decided by the Board of Directors. Until this amount is actually paid out, it is recorded as a liability on the company’s balance sheet.
Key Takeaways
- Dividend Payable refers to the amount a company owes to its shareholders in the form of dividends. It is declared by the board of directors and is paid on a specific date known as the payment date.
- This is recorded as a liability on the company’s balance sheet upon declaration, as it signifies an obligation of the company to pay its shareholders.
- The amount of dividends payable can affect company’s liquidity position, with higher dividends potentially indicating a solid financial health, but they can also drain the company’s cash resources if not managed properly.
Importance
The finance term Dividend Payable is crucial as it refers to the amount a corporation owes to its shareholders in the form of dividends at any point in time once a dividend has been declared.
This term becomes a liability that the corporation must fulfill.
Regular payment of dividends is an indication of a company’s profitability and it helps to attract and retain investors.
This is why tracking Dividends Payable can provide valuable insight into a company’s financial health and its ability to produce a return on investment for its shareholders.
Explanation
The primary purpose of the dividend payable is to delineate the portion of a company’s earnings that is earmarked for shareholders. It is essentially the company’s commitment to disburse a specified sum of its profits to its investors.
A well-managed and profitable company uses this approach to distribute a portion of its earnings among its shareholders, which can be an effective means to attract and retain investors. The dividend payable is announced by the company’s board of directors and is particularly appealing to income-focused investors.
The use of a dividend payable demonstrates the company’s financial health and profitability – an attribute that is attractive to potential shareholders. Regular or increasing dividends indicate a steadily profitable organization, instilling confidence in investors, and adding to the allure of acquiring shares.
It is worthwhile to note that not all companies have a dividend payable, especially those in the growth phase, as they may reinvest their profits back into the company to expedite their expansion and growth. Therefore, understanding the role and application of dividend payable is integral to a comprehensive investment strategy, allowing an investor to make insightful decisions that align with their financial objectives.
Examples of Dividend Payable
**Microsoft Corporation’s Dividend Payment**: In February 2021, Microsoft Corporation declared a dividend of $56 per share payable to its shareholders. This means, in simple terms, that for every share of Microsoft stock owned, the shareholder would receive a dividend payment of $**Coca Cola’s Dividend Payment**: The Coca Cola company is known for its regular dividend payouts. As of 2021, Coca Cola paid a quarterly dividend of $
42 per share, which totals $68 annually. This means if a shareholder owns 100 shares of Coca Cola, he would be entitled to receive $168 in annual dividends.**Johnson & Johnson’s Dividend Payment**: Healthcare giant Johnson & Johnson is another company known for its steady stream of dividends. The company announced a $
06 per share dividend for the third quarter ofThis simply means, shareholders would receive $06 for each share they hold after the dividend is declared payable.
FAQs for Dividend Payable
What is Dividend Payable?
Dividend Payable is a liability account in the general ledger that indicates the amount of dividends that a company owes to its shareholders after the company’s Board of Directors declares the dividends but before it’s actually paid out.
What does a high Dividend Payable indicate?
A high dividend payable usually suggests the company has been profitable and is distributing a portion of its profits back to its shareholders. It could also be a strategy by the company to attract more investors.
What happens if a company does not pay its Dividend Payable?
When a company declares a dividend but does not pay it, the dividend payable amount remains as a liability on the company’s balance sheet. Not paying dividends can negatively impact the company’s attractiveness to investors.
How can a company decrease its Dividend Payable?
A company can decrease its Dividend Payable by distributing the declared dividends to its shareholders. Once the dividend is paid to shareholders, it is subtracted from the Dividend Payable account, reducing the liability.
Is Dividend Payable part of current liabilities?
Yes, Dividend Payable is generally considered as a part of a company’s current liabilities as it is usually paid out within one year from its declaration.
Related Entrepreneurship Terms
- Dividend Declaration Date
- Ex-Dividend Date
- Record Date
- Payment Date
- Dividend Yield
Sources for More Information
- Investopedia: This website provides broad coverage of various finance and investment topics, including dividends payable.
- Accounting Tools: It is a comprehensive resource for understanding finance and accounting terms and concepts like dividends payable.
- Corporate Finance Institute: This website offers an online knowledge base with detailed articles about finance, investing, and corporate finance including dividends payable.
- The Street: The Street is a financial news and services website where you can learn about many financial terms such as dividends payable.
