What are Dividends Payable?

Any profit that the firm makes belongs to the owners of that firm. They are the shareholders. The amount of the profit that each shareholder should receive depends on how many shares they own. The more shares they own, the larger the proportion of the company they own and therefore the more of the profit they should receive. This share of the profit is known as a dividend and to spread out fairly, the dividend is normally expressed as an amount per share.



The size of the dividend depends on two things. First it depends on the amount of profit that has been made, but secondly it depends on how much of the profit is distributed to the shareholders. Profit is a vital source of funds for investment for a company and so if they were to distribute too much to the shareholders, they would damage their long-term performance. However, at the same time the shareholders are entitled to a share as the reward for the risk they have taken in investing in the company.

The Board of Directors has to balance up these two demands on the total profit, and will then recommend the size of the dividend they think is appropriate. This will then be put to the firm's AGM for the shareholders to vote on.

Profit attributable to shareholders = Dividends paid + Retained profit

For further details about profit, you could look at the section on operating profit or the Financial Ratios section.