dividend

A share of the after-tax profit of a company, distributed to its shareholders according to the number and class of shares held by them.

Smaller companies typically distribute dividends at the end of an accounting year, whereas larger, publicly held companies usually distribute it every quarter. The amount and timing of the dividend is decided by the board of directors, who also determine whether it is paid out of current earnings or the past earnings kept as reserve. Holders of preferred stock receive dividend at a fixed rate and are paid first. Holders of ordinary shares are entitled to receive any amount of dividend, based on the level of profit and the company's need for cash for expansion or other purposes. Corporate legislation generally forbids payment of dividend out of anticipated but not yet received (unrealized) profit. Normally all dividend payments are taxable, often at the source.