Dividend

“ When declared, a dividend becomes a debt of the corporation to its stockholders. It is not necessary that the directors declare dividends of all the surplus or net profits. Frequently the by-laws provide that a certain amount be reserved as working capital, and under any circumstances the questions of the advisability of declaring a dividend rests with the directors. They cannot be compelled to declare a dividend unless it can be shown that, in declining to do so, they are acting in bad faith.
20. Stock Dividends. ”

“ A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished, and their interests are not increased. After such a dividend, as before, the corporation has the title in all the corporate property; the aggregate interests therein of all the shareholders are represented by the whole number of shares ”

“ It is true that the resolutions and certificates entitle the stockholder to a dividend to be paid on the 80 per cent. 'at the same time and ratably with dividends on the capital stock.' But I fail to see how this, in any manner, inures to his advantage. The earnings of the company, instead of being applied to dividends on his capital stock, are applied on that and the certificates ratably, and to the extent that he receives a dividend on the certificates, his dividend on the capital stock is reduced. ”

“ It is the appropriate function of a dividend to convert a part of a surplus thus accumulated from property of the company into property of the individual stockholders; the stockholder's share being thereby released to and drawn by him as profits or income derived from the company. ”

“ Conceding that the mere issue of a stock dividend makes the recipient no richer than before, the government nevertheless contends extent to which the gains accumulated by the extend to which the gains accumulated by the corporation have made him the richer. ”

“ The constitution of the new stand company provided for the application of the profits realised in the following fashion: To begin with a dividend of five per cent. to be paid to the shareholders, [Pg 50] but curiously enough, according to the constitution of the company, this dividend fell to be paid before the wages of the stand servants! When the dividend, the check-takers and other servants had been paid, a sum of £500 was then to be allotted for the redemption of five of the shares, selected by ballot out of the total number. ”

“ That when any dividend is made which includes any part of the surplus or contingent fund of any bank, trust company, savings institution, insurance or railroad company, which has been assessed and the duty paid thereon, the amount of duty so paid on that portion of the surplus or contingent fund may be deducted from the duty on such dividend. ”

“ Stock is sometimes issued for dividend purposes. In such cases, it is always issued as of par value. If profits have been earned or a surplus accumulated out of which a dividend may be declared, that dividend may be paid in any way the corporation sees fit. ”

“ Where, as in this case, the dividend constitutes a distribution of profits accumulated during an extended period and bears a large proportion to the par value of the stock, if an investor happened to buy stock shortly before the dividend, paying a price enhanced by an estimate of the capital plus the surplus of the company, and after distribution of the surplus, with corresponding reduction in the intrinsic and market value of the shares, he was called upon to pay a tax upon the dividend received, it might look in his case like a tax upon his capital. ”

“ The original fund of principal being established, all dividends, whether in cash or stock, which disburse current earnings belong to the life-tenant as income. Where a dividend partakes of the nature of a liquidating dividend—i.e., represents a return of some portion of the net worth as at the decedent’s death—the portion so returned should, in equity, be looked upon as principal. ”

“ The effect of a stock dividend is twofold. From the point of view of the management of the surplus it has the effect of a permanent investment of the surplus in the business. Thus it places the accumulated profits beyond the control of any future board of directors. If left in surplus, a cash dividend might have been declared and the asset dissipated to that extent. The stock dividend, however, keeps the profits invested in the business in such a way as not hereafter to be available for dividends. ”

“ The dividend, again, may be payable out of the year’s profits only, or it may be cumulative, that is, a deficiency in one year is to be made good out of the profits of subsequent years. Prima facie, a preferential dividend is cumulative. ”

“ We submit that the proposition that dividends transfer to stockholders property which previously belonged to the company is true only of ordinary money dividends, and never of dividends of stock. The subject-matter of a stock dividend is a thing created, not transferred, by the declaration. It is a chose, taking the place of an aliquot share in capital. ”

“ Shares of the preferred stock, it is conceded, are entitled to a dividend of 7 per cent. from the net earnings of the road in each year whenever a dividend of net earnings is made, before any dividend can be claimed for the shares of the unpreferred stock, as that is a matter of priority created by the indenture, but it is insisted by the respondents that the priority does not extend beyond the 7 per cent., that when that priority is satisfied the preferred stock is not entitled to any further dividend in that year until the unpreferred stock shall receive a 7 per cent. ”

“ Dividends in kind are to be valued and treated as cash dividends. Subsection (e) provides that, in computing the basic surtax credit, a dividend paid in obligations of the corporation shall be treated as a cash dividend in the amount of the face value of the obligations or their market value, whichever is lower, and that, if the obligations are redeemed in a subsequent year, any excess paid the holders over the market value at date of issue shall be treated as a dividend paid in that year. ”

“ It will be seen that while the dividend on preference shares is more certain than that on the ordinary shares of a company, it is at the same time limited, whereas the dividend on the ordinary shares is only limited by the profit-earning capacity of the company. ”

“ The articles of association of a company usually provide that the shareholders may accept the director’s recommendation as to dividend or may declare a lower one, but may not declare a higher one than the directors recommend. Directors frequently have power to pay on account of the dividend for the year, without consulting the shareholders, an “interim dividend,” which on ordinary shares is generally at a much lower rate than the final or regular dividend. ”

“ Further, the very fact that so small a margin of net profit is needed, whether calculated on investment or capacity, to pay dividends, is of itself satisfactory assurance of the safety of the dividend rate. ”

“ And thanks to our efforts to reduce taxes on stock dividends, dozens of major companies have announced plans to either increase their existing dividend payout, or pay dividends for the first time, putting billions of dollars in cash into shareholder's pockets. ”

“ All dividends will be paid in cash, but each Stockholder will be allowed the privilege of taking instead of cash any books sold by the Company to the amount of the dividend, at special reduced prices to stockholders, which makes the dividend equivalent to about 16 per cent. Prices to Stockholders are the regular prices reduced by the amount indicated by the figures in parenthesis immediately following the Catalogue price. ”

“ The basic purpose of the various preferences is to make the stock attractive from an investment standpoint. Common to all preferred stocks, however, is a preference as to dividends. Whenever profits have been made and have been set aside for dividend purposes, the preferred stockholders receive their dividends ahead of the common stockholders. If only sufficient profits are available to meet the requirements of the preferred stockholders and are appropriated for that purpose, the common owners receive nothing. Stock may be preferred as to assets as well as to profits. ”

“ The first three of these deposits, at least, will be made of the total dividend of the subsidiary corporation. Not one of these six deposits represents trade. Payments of wages and rents should count as trade, but payments of interest and dividends stand on a separate footing. When a man has bought a stock or a bond, he has already bought all the income which is to come from them, and to count the interest and dividends as separate items is double counting. They are payments, but not trade. ”

“ It seems to me that we have acted with due consideration for every party. The dividend which we give to the proprietors is precisely the same dividend which they have been receiving during forty years, and which they have expected to receive permanently. ”

“ The dividend on cumulative preferred stock accumulates and becomes a preferred claim for the amount accumulated since the time of the last dividend declaration. That is, the common shareholders are not entitled to receive any dividend until the preferred shareholders have received the amount of the accumulated total. Preferred stock that is non-cumulative does not possess this feature. A dividend once passed on such stock is not a preferred claim to profits as compared with the dividend rights of common stockholders, but lapses completely. ”

“ the less money lying idle the greater is the dividend. ”

“ It must be answered that a good dividend is one which is obtained solely by good management, and on the contrary, that a dividend, however high it may be, is bad if it is only obtained by one of the four following means raising the prices above current prices, lowering wages below the trades union level, elimination of contributions to works of general utility, or the abolition or great reduction of the part which ought to be set aside for reserves and depreciations. ”

“ Article 628 of the regulations in force in 1928 provided: 'Stock dividends.-The issuance of its own stock by a corporation as a dividend to its shareholders does not result in taxable income to such shareholders, but gain may be derived or loss sustained by the shareholders from the sale of such stock. ”

“ The capital stock is increased; the new stock is paid up with the accumulated profits; and the new shares of paid-up stock are then distributed among the stockholders pro rata as a dividend. If the stockholder prefers ready money to increasing his holding of the stock in the company, he sells the new stock received as a dividend. ”

“ The directors of any association may, semi-annually, declare a dividend of so much of the net profits of the association as they shall judge expedient; kbut each association shall, before the declaration of a dividend, carry one-tenth part of its net profits of the preceding half year to its surplus fund until the same shall amount to twenty per centum of its capital stock. ”

“ Therefore, when a distribution of earnings is made by a corporation among its stockholders, the question whether such distribution bution is an apportionment of additional stock representing capital, or a division of profits and income, depends upon the substance and intent of the action of the corporation, as manifested by its vote or resolution; and ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income, of each share. ”

“ It is said there is no difference in principle between a simple stock dividend and a case where stockholders use money received as cash dividends to purchase additional stock contemporaneously issued by the corporation. ”

“ Extraordinary dividends.—If an individual receives, with respect to any share of stock, qualified dividend income from 1 or more dividends which are extraordinary dividends (within the meaning of section 1059 (c) ) , any loss on the sale or exchange of such share shall, to the extent of such dividends, be treated as long-term capital loss. ”