Cash Dividends

Cash dividends are payments made directly to shareholders in proportion to the shares they own. Cash dividends are paid on all outstanding shares of stock. That means no dividends are paid on treasury stock. Cash dividends can be paid monthly, quarterly, semiannually, or annually though most U.S. corporations that pay dividends do so on a quarterly basis. A few companies pay special or extra dividends occasionally—identifying these dividends apart from their regular dividends.

We usually describe the cash dividends that a company pays in terms of dividends per share (DPS). For example, during 2001 General Electric paid $2,848 million in common dividends on the 9,925 million common shares outstanding. Therefore, General Electric paid $0.64 in dividends per share of stock. We can calculate the DPS as:

Number of common shares outstanding

For General Electric in 2001,

Dividends per share = $6,358 million = $0.64 per share $9,925 million

If you owned 10,000 shares of General Electric stock during 2001, you would have received cash dividends of $0.64 per share time 100 shares = $6,400.

Another way of describing cash dividends is in terms of the percentage of earnings paid out in dividends, referred to as the dividend payout (DPO). General Electric had earnings of $13,684 million of which $6,358 million or 46.5% were paid out to shareholders. General Elec-tric's earnings per share of stock were $13,684 million/9.925 million shares = $1.38.

We can write the dividend payout in terms of dividends and shares outstanding:

Common stock dividends

Dividend payout = ----------------------------------------------------------------------------------------------------------------- (16-2)

Earnings available to common shareholders

In the case of General Electric for 2001,

$6,358 million Dividend payout = $13, miUlon = 46.5%

If we divide both the numerator and the denominator by the number of common shares outstanding, we can rewrite the dividend payout ratio as:

Dividends per share

Earnings per share

In terms of General Electric's 2001 dividends and earnings per share:

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