Capital Dividend

AAA

DEFINITION of 'Capital Dividend'

A type of payment by a firm to its investors that is drawn from a company's paid-in-capital or shareholders' equity, rather than from the company's earnings, as with regular dividends. Such a dividend is often paid out in instances where a dividend payment is required, but company earnings cannot facilitate such a cash payment.


Also known as a "return of capital".

INVESTOPEDIA EXPLAINS 'Capital Dividend'

A capital dividend is typically not taxable for shareholders, as it is viewed as a return of the capital paid in by investors. Capital dividends are not a preferred form of dividend payment for firms or investors, as they are often seen as a sign of a company struggling to generate earnings and free cash flow. Additionally, by paying out dividends from retained earnings, a company's struggles may worsen as its capital base shrinks, limiting investment and business opportunities in the future.

RELATED TERMS
  1. Cum Dividend

    When a buyer of a security is entitled to receive a dividend ...
  2. Capital Dividend Account - CDA

    A special corporate tax account which gives shareholders designated ...
  3. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  4. Return Of Capital

    A return from an investment that is not considered income. The ...
  5. Equalizing Dividend

    An additional dividend paid to eligible stockholders when their ...
  6. Scrip

    1. A written document that acknowledges a debt. 2. A temporary ...
Related Articles
  1. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  2. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  3. Markets

    Your Dividend Payout: Can You Count On It?

    We go over several telling factors that can help you answer this question and avoid losses.
  4. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  5. Stock Analysis

    Why Should You Invest In Stratasys Today?

    When Stratasys pre-announced its fourth-quarter earnings, management highlighted that its MakerBot acquisition was underperforming expectations.
  6. Stock Analysis

    What’s The Highest Dividend-Paying Tech Stock?

    Technology stocks tended not to pay dividends, preferring to reinvest available capital back into their respective businesses to accelerate their growth.
  7. Investing

    Is Caterpillar Here To Stay?

    Because Caterpillar is the largest construction and mining equipment manufacturer in the world, investors can count on it to keep paying dividends.
  8. Investing

    Windstream's Strategy For Dividend Investors

    Windstream Holdings has been among the top dividend-paying stocks in the market, with double-digit percentage yields that have stood the test of time.
  9. Investing

    Are You An Investor Seeking For More Income?

    For income-seeking investors, it's hard to turn down a double-digit dividend yield like that of Prospect Capital Corporation .
  10. Investing

    How Gilead Sales Have Grown Conspicuously?

    Learn how Gilead sales have climbed from $1.33 billion in 2004 to $24.89 billion as of the end of 2014.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center