The word “dividend” is used in various ways. It can mean the cash payments made by a company to its shareholders or the number of earnings distributed to shareholders in dividends.
Proposed dividend: A dividend is a form of payment that an issuer can pay to its shareholders.
It is usually a percentage and paid out of net income or excess earnings over total expenses.
Dividend payable: An investor receives when the issuer pays dividends.
Most investors would be able to tell you that the amount of money that a company intends to pay out to its shareholders is a proposed dividend. In contrast, what the company pays out in dividends is known as dividend payable. It’s easy to confuse these two because they are both included in statements about an investment.
In the case of dividend distribution, the company pays cash to its shareholders, and in the case of dividend payable, the company has to pay dividends on its balance sheet.
Proposed Dividend Vs. Dividend Payable
The proposed dividend payout is a dividend from a company to its shareholders. This might be in cash, shares of stock, or other benefits. Dividend payable is the total amount that a company is owned by its shareholders for their share of profits and losses. This might include payments in cash, shares of stock, or other benefits.
The difference between dividend payable and dividend is that the latter is paid to shareholders after a tax deduction and inclusion in their income tax return. Corporations pay dividends as per their corporate structure. They may be paid in cash or in-kind.
Every financial year, every shareholder of a company is given a dividend and it is by the board of directors. These dividends can be paid in one lump sum or installments. Dividend payable means that the payment is only made when all requirements are met. This includes ensuring that enough cash is available to pay out the dividend and that all shareholders have been paid at least their proportional share of the dividend through their issue of securities. In the case of Proposed Dividend VS Dividend Payable, you must have different rules in mind regarding how one should opt for these two.
What is a proposed dividend?
A dividend is basically a distribution of company profits to shareholders. The company’s directors determine the amount, timing, and form of the dividend. A dividend intends to provide current-year income while providing capital gains in the form of cash or securities as well. While proposing dividends, corporations must meet different standards and consider many factors.
The proposed one is often described as an ‘invitation’ that the board of directors provides its stockholders for shares with profits after taxes (the balance sheet). It is an invitation to stockholders of the corporation to offer a share as long as they pay extra for it. In such cases, proposals are generally communicated to stockholders within six months after the end of the calendar year or three months in case of month-end.
There is no formal requirement that the board of directors includes in their annual report the details regarding this invitation to pay extra for a share than those offered earlier by them, on what company’s terms and conditions it may be availed of (demanded or not).
What is the dividend payable?
A dividend that is payable is a payment that a company makes to its shareholders based on its profits. Stipulations made in the firm’s charter or articles make it mandatory for a company to distribute one-time dividends over its lifetime.
In most cases, investors receive a dividend independently of whether shareholders have received any profit (increase) since they entered into the shareholding agreement, i.e., upon entering into their initial investment contracts with such companies. They expect companies that post profit a generous amount to be considered minimum projected income during their investments.
The norm concerning dividend notice should be an announcement made six months after the financial year-end (six months from ending December 31), in line with what the board must have decided according to its fiduciary duty. For development, some companies make declarations within 11 days semester or two weeks before cropping, although they cannot pay dividends if the said period is passed.
Difference Between Proposed Dividend and Dividend Payable
- Proposed dividends are also typically subject to shareholder approval, whereas dividends payable (payable or not) are considered part of the company’s contractual obligations.
- There can be differences between proposed and actual dividends paid out, as companies may choose to alter their payout structure after announcing a proposal (proposed) dividend.
- The proposed one is a proposal made to shareholders by the company for their approval. On the other hand, dividend payable becomes mandatory based on stipulations in the firm’s charter or articles of association.
- Proposed dividends are not binding on the company and can be changed or canceled at any time without shareholder approval. In contrast, dividends payable are legally bound and cannot be altered without the consent of all shareholders.
- A proposed one is typically paid out at the same time as a company releases its financial results for the year – generally around six months after year-end (the date of which coincides with when formally approved dividends are paid). A dividend which is payable becomes mandatory once stipulations in the company’s charter or articles of association have been met.
Conclusion
Proposed dividends are more flexible compared with a dividend payable. They can be announced at any time but may not necessarily lead to the actual payment of dividends (at least in the case of many multinational companies). On the other hand, if there is no approved proposal, shareholders can’t receive a declared dividend and payout what remains on their account as interest.