Capital Dividend

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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".

BREAKING DOWN '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.

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RELATED FAQS
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    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
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    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
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    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
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