A liquidating dividend occurs

11-Feb-2015 16:00

A liquidating cash dividend, on the other hand, occurs when the company doesnt have enough profits or built up retained earnings to fund a cash distribution.

Its called a liquidating dividend because it takes money out of the company without sufficiently replenishing it with profits.

That is, a liquidating dividend occurs when a company pays more than its total profit in dividends.

This usually happens when shareholders believe that the company is no longer sustainable or profitable.

This is no different than a company going into bankruptcy and liquidating its assets to pay off creditors.

In this case, the company is paying investors back their original investments.

All of the firm's debts must be paid before it can pay liquidating dividends. A pro rata distribution of cash or property to stockholders as part of the dissolution of a business.A traditional dividend is recorded by debiting retained earnings and crediting cash for the amount paid to the shareholders.A company that declares a liquidating dividend doesnt have enough retained earnings to declare a regular dividend.A stock paying a liquidating dividend is indicated in stock transaction tables in newspapers by the symbol C, next to the dividend column.

See also final dividend, General Utilities Doctrine.A regular dividend is the distribution on profits or retained earnings for a period.