Dividends

• A dividend is a periodic payment of profits to shareholders. Dividends can only be paid out of profits and are paid according to a shareholder's number of stocks and the extent to which those shares are subordinated to other shares. For example, if a company decides to pay $5 million in dividends, holders of preferred stock are generally paid first, followed by holders of common stock, assuming there are dividend funds remaining.
  
  

Dividend Declaration

• There are several steps a company goes through when it wishes to pay a dividend. It is the prerogative of the board of directors to pay dividends, and the first step in that process is to formally declare that a dividend will be paid. At that point, the dividend payment becomes an obligation of the company and will show up on the liabilities section of their financial statements.
  
  

Dividend Payment

• After the board of directors has declared a dividend, the next step in the process is to actually pay the dividend. Once a dividend is paid, it no longer shows up as a liability on a company's financial statements and shareholders will be obligated to pay income tax on their dividends.
  
  

Stock Dividend Distributable

• The term "stock dividend distributable" refers to a dividend that has been declared but not actually paid. This is the term that will show up as a liability on the company's financial statements. It simply means that the company is obligated to pay a dividend but has not yet done so.