What is ‘Unpaid Dividend’
An unpaid dividend is a dividend that is due to stockholders of record but has not yet been distributed. An unpaid dividend will exist during the time between the record date — as of which all holders of the security are eligible to receive the dividend — and the dividend payment date.
Breaking Down ‘Unpaid Dividend’
An unpaid dividend is a dividend that has been declared by a corporation’s board of directors but has not yet been paid out. Unpaid dividends are not uncommon, as typically there is a lag between the declaration date and the dividend payment date.
Not to be Confused with ‘Unclaimed Dividends’
Unclaimed dividends are different than unpaid dividends. Unclaimed dividends have already been paid by the company, but have not been taken, or claimed, by the shareholder. Just as a company is obliged to report to the Internal Revenue Service the dividends it paid, shareholders also need to claim their dividends, not only to receive the payment of course, but also to accurately disclose that additional income on their tax return. Many shareholders still get physical dividend checks sent to them by companies. But quite a few shareholders forget to cash them, or never get the check in the first place because of having moved, or for various other reasons.
Thus, it can happen that dividends may be paid but not claimed. For dividends that are not claimed within 30 days of the declaration date, the company puts them in a special unpaid dividend account. If, after seven years, a dividend still remains unclaimed, the company is supposed to transfer the money to an “investor education and protection fund.” Simultaneously, the company is required to post a list of unclaimed dividends, along with the dividend-eligible shareholders’ names, on its website.
Accounting Implications of Unpaid Dividends
For the company, both unpaid and unclaimed dividends are shown as current liabilities on the balance sheet until they are paid. Shareholders’ equity is decreased by the total dividend amount due to be paid on the declaration date; to offset that, a “dividends payable” entry is made into the account on the same date. After the dividend amount is finally paid to shareholders, the dividends payable amount shown on the account is reversed and zeroed out.
To learn more about dividends and their related terminology, please see our article, Introduction to Dividends.