Liquidating dividends effect on retained earnings

The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare.They assume that they’re using their shareholders’ resources efficiently if the company’s performance—especially ROE and earnings per share—is good and if the shareholders don’t rebel.Noncumulative preferred stock is preferred stock in which a dividend expires whenever the dividend is not declared.When noncumulative preferred stock is outstanding, a dividend omitted or not paid in any one year need not be paid in any future year.Recall that Retained Earnings are generated from profitable operations--net income.

In short, stock market performance and the company’s financial performance are inexorably linked. What if no correlation exists between a company’s profitability and the short-term—and even long-term—performance of its shares?

Such dividends—in full or in part—must be declared by the board of directors before paid.

In some states, corporations can declare preferred stock dividends only if they have retained earnings (income that has been retained in the business) at least equal to the dividend declared.

Companies issue preferred stock to avoid: Unlike common stock, which has no set maximum or minimum dividend, the dividend return on preferred stock is usually stated at an amount per share or as a percentage of par value. When a corporation issues both preferred and common stock, the preferred stock may be: Stock preferred as to dividends means that the preferred stockholders receive a specified dividend per share before common stockholders receive any dividends.

A dividend is the amount paid to preferred stockholders as a return for the use of their money.