What is a Property Dividend
A property dividend is an alternative to cash or stock dividends. A property dividend can either include shares of a subsidiary company or any physical assets owned by the company such as inventories, equipment or real estate. The dividend is recorded at the market value of the asset provided, although the shareholder may hold onto the asset for the possibility of further long-term capital gains.
BREAKING DOWN Property Dividend
This type of payout structure is less common than the regular stock or cash dividend system. From a corporate perspective, property dividends can be distributed if the parent company does not wish to dilute its current share position or if it does not have enough cash on hand to distribute healthy payments.
Property dividends have monetary value even though they are considered a non-monetary type of dividend.
How Dividends Are Issued
Dividends are issued to eligible preferred and common shareholders representing a portion of a company’s profits that are paid on a quarterly or yearly basis. Companies in the U.S. typically pay quarterly dividends, while companies outside the U.S. generally pay annual or semi-annual dividends. Dividends are normally paid based on the number of shares you own, also known as a per-share basis.
A dividend must be approved by a company's board of directors. Property dividends are also known as "dividends in kind," meaning that they are dividends distributed in a form other than cash.
Example of a Property Dividend
As an example, Company A's board of directors approves a property dividend it issues to its 10,000 shareholders. The asset Company A distributes is worth $500 to each shareholder. The fair market value of the assets being paid to shareholders in total is five million dollars. Each of the shareholders of Company A may then decide to sell or hold onto the asset.
Advantages of Property Dividends
An in-kind dividend like a property dividend can be advantageous for investors who may be looking to reduce or defer their taxes as they can keep them held for a period of time without liquidating the asset. For a shareholder, receiving appreciated property directly may also result in a lower tax bill rather than selling the property and obtaining the value of the property in cash.
For a company, property dividends can be a preferred distribution method when the fair market value of an asset is sizably different than the book value. This variance will allow a company flexibility in how they can report their taxable income.