Dividend Characteristics
• Dividends are not a liability of the firm until a dividend has been declared by the Board
• Consequently, a firm cannot go bankrupt for not declaring dividends
• Dividends and Taxes
– Dividend payments are not considered a business expense, therefore, they are not tax deductible
– Dividends received by individuals are taxed as
ordinary income (Changing!)
– Dividends received by corporations have a minimum 70% exclusion from taxable income