Property dividend definition
/What is a Property Dividend?
A property dividend is a dividend paid to investors with assets other than cash. Property dividends can be viewed as a sign that the issuer is short on cash, since cash dividends are considered to be the preferred form of dividend.
Accounting for Property Dividends
The issuer records property dividends at the fair market value of the assets paid to shareholders.
Examples of Property Dividends
Here are several examples of property dividends:
Merchandise. Eternal Candles does not have enough excess cash to pay its investors. However, what it does have is an excess amount of its own candles in stock, so it sends a selection of the candles to its investors. The market value of these candles is $50,000, so the company records the value of the dividend at that amount. A side benefit is that the company removes excess inventory from its books that would likely not have been sold in the short term.
Shares. A large conglomerate owns a 40% stake in a smaller company. It decides to distribute 10% of that stake to its shareholders as a property dividend. Its holding was already just a minority interest, so this distribution has little impact over its control over the smaller company.
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FAQs
How are Property Dividends Valued?
Property dividends are valued at the fair market value of the assets being distributed on the declaration date. If the asset’s book value differs from its fair value, the company must recognize a gain or loss before distribution. This ensures both the financial statements and the shareholders’ income reflect the current market value of the property received.