Patronage Dividend

AAA

DEFINITION of 'Patronage Dividend'

A dividend or distribution that a co-operative pays to its members or investors. Patronage dividends are given based on a proportion of profit made by the business. Once this amount is figured out the dividend is calculated according to how much each member has used the co-op's services. Tax rules view these profits essentially as an overcharge, which can be returned to patrons and deducted from the co-op's taxable income.

INVESTOPEDIA EXPLAINS 'Patronage Dividend'

As the name implies, patronage dividends are paid to individuals as a result of belonging to the co-operative. One example can be seen when families purchase groceries through a co-operative and receive income or a credit on their account in return. Although they are taxed as ordinary dividend income, they may also contain an alternative minimum tax adjustment amount and are usually reported on Form 1099-PATR. Some co-ops will use the dividends to reduce the selling price of items, thus, in a way, the more you spend the more you receive.

RELATED TERMS
  1. Credit Union

    Member-owned financial co-operative. These institutions are created ...
  2. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  3. Distributable Net Income - DNI

    In the case of an income trust, an amount that is transferable ...
  4. Mutualization

    The process of changing a firm's business structure so the owners ...
  5. Financial Cooperative

    A financial institution that is owned and operated by its members. ...
  6. Payout Ratio

    The proportion of earnings paid out as dividends to shareholders, ...
Related Articles
  1. How And Why Do Companies Pay Dividends?
    Investing Basics

    How And Why Do Companies Pay Dividends?

  2. Why Dividends Matter
    Fundamental Analysis

    Why Dividends Matter

  3. Your Dividend Payout: Can You Count ...
    Markets

    Your Dividend Payout: Can You Count ...

  4. How Dividends Work For Investors
    Investing Basics

    How Dividends Work For Investors

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center