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Dividend Distributable vs. Dividend Payable

Original post by Eric Feigenbaum of Demand Media

Once a company's board of directors declares a dividend, it becomes a dividend distributable.

Dividends are profits that a company pays out to its shareholders. Dividends can make a stock worth much more than the trading price of its shares. In accounting and legal terminology, dividends distributable and dividends payable are essentially the same thing -- declared dividends that have yet to be paid to shareholders. However, the terms are usually used for different and specific circumstances.

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Dividend Distributable

The term dividend distributable is usually used in accounting. When corporate accountants update ledgers, unpaid dividends are recorded as liabilities labeled dividends distributable. Once the dividends have been paid, they become dividends paid. This terminology is used in company financial reports and statements.

Divdend Payable

A dividend payable is effectively no different than a dividend distributable. However, the term is usually used when determining the dividend payable date. Boards of directors declare dividends to owners who hold stock as of a specific date. Those who buy shares after the dividend payable date usually receive no dividend for a particular quarter, and have to wait for the next dividend distribution.

Cash Flow

If all goes well for a company, dividends distributable won't last on the books for too long. Ideally, the company has the cash on hand to make good on its dividends and removes the liability from its books soon after the dividend payable date. Of course, some companies experience cash flow problems or unexpected expenses that can create delays. If a delay lasts too long, a company can develop multiple dividends payable dates if another wave of dividends is declared before having paid the first set of dividends distributable.

Cumulative Preferred Stock

Some companies offer cumulative preferred stock. Similar to a bond, it guarantees investors regular dividend payments. When a company is not able to pay a dividend to its stockholders, cumulative preferred stock continues to accrue dividends payable. These grow as a liability on the books and are paid out when the company has enough money. In this situations dividends distributable can last on the books for a lengthy period.


                   

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About the Author

Eric Feigenbaum started his career in print journalism, becoming editor-in-chief of "The Daily" of the University of Washington during college and afterward working at two major newspapers. He later did many print and Web projects including re-brandings for major companies and catalog production.

Photo Credits

  • Dynamic Graphics Group/Dynamic Graphics Group/Getty Images


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