Term · Capital Measures & Financing
Dividend
In briefThe dividend is the portion of profit that a stock corporation distributes to its shareholders. The general meeting decides on its amount. It is not mandatory, since profits can also be retained and reinvested. What matters is whether it can be sustainably financed from ongoing earnings.
Definition
The dividend is the portion of profit that a stock corporation distributes to its shareholders. The general meeting decides on the appropriation of the balance-sheet profit and the amount of the dividend, on the proposal of the management board and the supervisory board. A dividend is not an obligation; profits can also be retained and reinvested.
How it is calculated
Formula. Total dividend = Dividend per share × Number of dividend-entitled shares
Why it matters for small caps
For small stocks, a dividend is often a signal of stability and cash generation, but it can also tie up funds needed for growth. Sustainability counts for more than the sheer amount.
Common misreadings
- A high dividend is frequently rated automatically as strength, even though it can be financed out of substance or through debt.
In the process
Frequently asked
Who decides on the dividend?
The general meeting decides, on the proposal of the management board and supervisory board, on the appropriation of the balance-sheet profit and thus on the dividend. An entitlement arises only with this resolution.
Is a high dividend always good?
Not necessarily. If it is paid out of substance or through new debt, it is not sustainable. More informative is whether free cash flow covers the distribution.
What is the difference between dividend and dividend yield?
The dividend is a cash amount per share; the dividend yield relates this amount to the price. A high percentage can also arise from a fallen price.
Related terms
Sources
Primary
Aktiengesetz (AktG)
https://www.gesetze-im-internet.de/aktg/
https://www.gesetze-im-internet.de/aktg/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.