7501 / What is a dividend?

A dividend is a distribution of cash or property, made by a corporation to its shareholders out of accumulated or current earnings and profits. (Distributions are treated as coming out of earnings and profits to the extent the corporation has any.)¹ A dividend is a distribution made “with respect to” a corporation’s common or preferred stock; that is, it is made because of stock ownership, not because of some other reason – such as compensation for services rendered or goods provided or in payment of a debt – even though it is made to a stockholder. While distribution by a company of its own stock or of stock rights is commonly called a stock dividend, it is generally not considered a dividend for tax purposes, because it is not treated as a distribution of property.² (That general rule is subject to exceptions, however, see Q 7509.)