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Cash Dividends

A cash dividend is a dividend paid in cash. To be able to pay cash dividends, companies need to have not only sufficient earnings but also sufficient cash. Even if a company shows a large amount of retained earnings on its balance sheet, it may not be enough to ensure cash dividends. The amount of cash that a company has is independent of retained earnings. Cash-poor companies still can be profitable.

Additional Comments:

Most American companies pay regular cash dividends quarterly; some pay dividends semiannually or annually. Johnson & Johnson, the pharmaceutical company, pays quarterly dividends, and McDonald's pays an annual dividend.

A company might declare extra dividends in addition to regular dividends. An extra dividend is an additional, nonrecurring dividend paid over and above the regular dividends  by the company. Microsoft Corporation paid an extra dividend of $2 per share over and above its regular dividend to shareholders of record holding the stock on November 15, 2004.

Rather than battle to maintain a higher amount of regular dividends, companies with fluctuating earnings pay out additional dividends when their earnings warrant it. Whenever times were good for the automobile industry, for example, General Motors declared extra dividends.

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