WHERE DO THE COMPANYS DIVIDEND PAYMENTS COME FROM? - ProProfs Discuss
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Where do the companys dividend payments come from?



Asked by Lindsey, Last updated: May 22, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

When dividends are paid each year, the retained earnings of the company arereduced. you may recall from somewhere in the text that retained earnings doesntnecessarily represent cash that the company has on hand. a lot of the profits retainedover the years are invested back into the company in the form of plants, machinery,investments of other sorts, etc. the most important point about paying dividends is thefollowing: is there enough cash on hand? so even in a year when the company hasvery low earnings, dividends can still be paid, provided the company has enough cashin the cash account.that means the extremely high payout ratios that you see are a result, as yousuggested, of a company with extremely low earnings but decided to make a dividendpayment with the cash they had on hand.
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