Residual Dividend

AAA

DEFINITION of 'Residual Dividend'

The term residual dividend refers to a method of calculating dividends. A dividend is a payment made by a company to its shareholders. It is essentially a portion of the company's profits that is divided amongst the people who own stock in the company. A residual dividend policy is one where a company uses residual or leftover equity to fund dividend payments. Typically, this method of dividend payment creates volatility in the dividend payments that may be undesirable for some investors.

INVESTOPEDIA EXPLAINS 'Residual Dividend'

Companies that use the residual dividend policy first use the cash flow to fullfill necessary capital expenditures and the remaining amount available (the residual) is paid out to shareholders. Also, if the company is maintaining a certain target debt to equity capital structure, then the full amount of the capital expenditure will not be paid entirely by equity but also with part debt.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Declaration Date

    1. The date on which the next dividend payment is announced by ...
  3. Debt/Equity Ratio

    A measure of a company's financial leverage calculated by dividing ...
  4. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  5. Equalizing Dividend

    An additional dividend paid to eligible stockholders when their ...
  6. Dividend Clawback

    An arrangement under which those financing a project agree to ...
RELATED FAQS
  1. What is the average annual return in the utilities sector?

    As of January 2015, the average annual return in the utilities sector for the past 10 years has been approximately 11%, outperforming ... Read Full Answer >>
  2. How can the problem of asymmetric information be overcome?

    Asymmetric information is inherent in most, if not all, markets. To take a basic example, a patient admitted to a hospital ... Read Full Answer >>
  3. What is the difference between preference and ordinary shares?

    Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation ... Read Full Answer >>
  4. What is the difference between record date and ex-dividend date?

    The record date of a stock and the ex-dividend date are both important terms that relate to which investors receive dividends ... Read Full Answer >>
  5. What is the difference between record date and payable date?

    Record and payable dates are important to keep track of because they relate to dividends earned and paid out to investors ... Read Full Answer >>
  6. How were the figures 80 and 20 arrived at in the 80-20 rule (Pareto Principle)?

    The 80-20 rule has its roots in early 20th century Italy. Economist Vilfredo Pareto – best known for the concepts of Pareto ... Read Full Answer >>
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. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  3. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  4. 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.
  5. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  6. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  7. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  8. Investing Basics

    Understanding Risk-Return Tradeoff

    The essence of risk-return tradeoff is embodied in the common phrase “no risk, no reward.”
  9. Investing

    3 Top Pharma Stocks that Pay Regular Dividends

    The low down on three big name, dividend-paying pharma stocks.
  10. Trading Strategies

    Top 3 High Yield Stocks with Growth Potential

    High yield and growth potential don't often go hand in hand, except when it comes to these three stocks.

You May Also Like

Hot Definitions
  1. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  2. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  3. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  4. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  5. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  6. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
Trading Center