Whether dividends paid on stock are considered assets depends on which role you play in the investment: the issuing company or the investor. As an investor in the stock market, any income you receive from dividends is considered an asset. However, for the company that issued the stock, those same dividends represent a liability.
What Are Dividends?
At the end of each fiscal year, a company that turned a profit can choose to redistribute some of those funds to its shareholders in the form of dividends. Dividends basically offer a tangible way for companies to show gratitude to their shareholders for their continued support and investment.
Common shareholders are not guaranteed dividends. However, paying consistent or increasing dividends each year is considered a sign of financial health, so businesses with generous dividend histories tend to be very popular among investors.
Dividends Are Considered Assets for Shareholders
When a company pays cash dividends on its outstanding shares, it first declares the dividend to be paid as a dollar amount per owned share. For example, a company with 2 million shares outstanding that declares a 50-cent cash dividend pays out a total of $1 million to all shareholders.
For Companies, Dividends Are Liabilities
Conversely, the assets of the issuing company are reduced by the payment of a dividend. In fact, the declaration of a dividend creates a temporary liability for the company.
When a dividend is declared, the total value is deducted from the company's retained earnings and transferred to a temporary liability sub-account called dividends payable. This means the company owes its shareholders money, but has not yet paid. When the dividend is eventually distributed, this liability is wiped clean and the company's cash sub-account is reduced by the same amount.
The end result is the company's balance sheet reflects a reduction of the assets and stockholders' equity accounts equal to the amount of the dividend, while the liabilities account reflects no net change.