This is the proportion of the earnings of a corporation received by the owners of its stock, and represents to them their profits in the enterprise. These profits are distributed in proportion to the par value of the stock. Suppose that a corporation with $100,000 capital enjoyed prosperous business and at the end of six months or a year had earned $15,000 in the way of profits. The directors of the corporation meet and decide that they will divide among the stockholders $10,000. Each holder of one share of stock (supposing the par value of such share to be $100) receives $10, which would be called a " dividend of 10%; " this would leave $5,000 still in the business of the corporation, which it had not divided among the stockholders. This could be treated in two ways; left on the books as " undivided profits," that is, profits which might be divided at some later time, or even possibly the following year, provided the earnings of that year did not come up to the expectations; or it could be treated as a surplus fund and called " surplus."
By this latter method it would be almost equivalent to an increase in the capital stock, and would represent, in this case, 5% of such capital; each owner, therefore, would have the right to value his stock for that much more accordingly. Of course, the distinction between " undivided profits " and " surplus " is largely a matter of bookkeeping, but when put under the latter heading it gives rather a better impression, and lets the corporation enjoy a somewhat better standing than as if classed under " undivided profits; " for under the heading of "surplus" it indicates to the public at large an inclination on the part of the corporation to build up its capital rather than to divide up all its earnings.
When the creditors of a bankrupt receive payments they are called " dividends; " payments made from time to time to the depositors of a bank in liquidation, or to the share holders of the same, are " dividends." There are a great many applications of this word.
The "dividends" of the earnings of any corporation are usually declared or paid at stated intervals; for instance, the first of January and the first of July of each year. If no "dividend" should be declared during the July period, with no intent of declaring any before the next fixed date, which would be January, the July "dividend" would be said to have been "passed" or in other words, the company had "passed its dividend."
Unless otherwise stated by the corporation declaring it, a dividend is presumed to be - and should be - paid from net earnings or profits.