Definition
A cash dividend is a distribution by a corporation to its shareholders of money (or its equivalent) drawn from the corporation's earnings or profits. It is the most common form of dividend and stands in contrast to stock dividends, property dividends, and scrip dividends, which distribute something other than cash.
The defining features are: (1) the source is corporate earnings or profits, not a return of capital; and (2) the distribution is payable in money rather than in additional shares or other property.
In trust and estate contexts, the classification of a cash dividend as income or principal carries significant legal consequences. Dividends paid from earnings accumulated after the creation of a trust are treated as income belonging to the life tenant. Dividends representing a return of capital or a liquidation of the corpus are generally treated as principal belonging to the remainderman.
In tax law, cash dividends received by individual shareholders are included in gross income. Whether they qualify as "qualified dividends" subject to preferential capital gains rates depends on meeting holding-period and other statutory requirements.
Common Confusion
CASH DIVIDEND vs. STOCK DIVIDEND: A stock dividend distributes additional shares rather than money. The two are not interchangeable and carry different legal consequences in every context — trust accounting, tax treatment, and shareholder rights all turn on the distinction. Historical sources occasionally use "dividend" loosely to mean any corporate distribution; researchers must confirm which type is actually at issue.
CASH DIVIDEND vs. RETURN OF CAPITAL: Not every cash distribution from a corporation is a dividend. Distributions exceeding accumulated earnings and profits are treated as a return of capital, reducing the shareholder's basis, and are not taxable income until basis is exhausted. Bouvier's entry makes this distinction implicitly by anchoring the definition to "earnings or profits."
Why It Matters in Research
The term is stable in its core meaning — money paid out of earnings to shareholders — but its legal consequences vary sharply depending on the legal framework in which it appears.
In trust and estate research, the critical question is always when the earnings were accumulated relative to the creation of the trust. Pre-trust earnings, even if distributed as cash, may be treated as principal. Post-creation earnings flow to the life tenant. The Uniform Principal and Income Act, adopted in various versions across jurisdictions, governs this allocation in modern sources; older cases relied on common law rules that were less uniform. Researchers working with pre-twentieth-century trust materials should not assume modern allocation rules apply.
In corporate law research, cash dividends require board declaration, and the right to receive them is contingent on that declaration — shareholders generally have no enforceable right to a dividend until the board acts. This distinguishes dividends from debt obligations.
In tax research, the qualified dividend rules introduced by federal legislation in the early 2000s created a bifurcated tax treatment that does not appear in older sources. Researchers using pre-2003 materials will find a different rate structure. The characterization question — whether a distribution is a dividend, a return of capital, or something else — is determined by reference to the corporation's earnings and profits account, a concept distinct from book income or retained earnings under GAAP.
Cross-corpus note: The trust/estate treatment and the tax treatment of cash dividends operate under different analytical frameworks and can produce different results on the same set of facts. A distribution may be income for trust accounting purposes but partially a return of capital for tax purposes. Researchers should resist using conclusions from one framework to answer questions in the other.
Historical Dictionary Support
Bouvier's definition captures the essential trust-law dimension of the term with precision: a cash dividend is a distribution from earnings or profits, and its classification as income versus principal in a trust turns on when those earnings accumulated. The entry is useful in that it acknowledges a practical feature of older corporate practice — that a declared cash dividend could sometimes be applied toward the purchase of new stock rather than taken in money — while still characterizing the whole as a "cash dividend" for income allocation purposes.
What Bouvier's does not address, as would be expected of a general law dictionary of its period, is the tax treatment, the distinction between qualified and ordinary dividend income, or the earnings-and-profits concept as developed by federal tax law. Researchers should treat Bouvier's as authoritative on the trust and property-law dimensions of the term but should consult modern tax sources for any federal income tax question.
Jurisdictional Note
The trust-law allocation rules vary by state and by which version of the Uniform Principal and Income Act, if any, the jurisdiction has adopted. Federal tax treatment is uniform by statute, but state income tax conformity with federal qualified dividend rates is not universal.
Encyclopedia Cross-Reference
The Law Mind Business Organizations & Corporate Law Encyclopedia: Shareholders — Dividends and Distributions to Shareholders
The Law Mind Tax Encyclopedia: Gross Income — Dividend Income
The Law Mind Tax Encyclopedia: Gross Income — Bartering and Non-Cash Income (for contrast with non-cash distributions)