Property Dividend

What Is Property Dividend?

A property dividend is an alternative to cash or stock dividends and can either include shares of a subsidiary or any physical assets owned by the company such as inventory, equipment or real estate.

Understanding Property Dividend

A property dividend, when awarded, is recorded at its market value. The shareholder may hold onto the asset for the possibility of further long-term capital gains. This type of payout structure is less common than a regular stock or cash dividend.

From a corporate perspective, property dividends can be distributed if the parent company does not wish to dilute its current share position or if it doesn't have sufficient cash for distributions. Property dividends have monetary value even though they are considered a non-monetary type of dividend. 

An in-kind dividend like a property dividend can be advantageous for investors who may be looking to reduce or defer taxes, as they can keep the property for a period of time without liquidating the asset. For a shareholder, receiving appreciated property directly may also result in a lower tax bill rather than selling the property and obtaining the value of the property in cash.

For a company, property dividends can be a preferred distribution method when the fair market value of an asset is significantly different than the book value. This variance will allow a company flexibility in how it reports taxable income.

Property Dividend Example

Dividends are issued to eligible preferred and common shareholders and represent a portion of a company's profits that are paid on a quarterly or yearly basis. Companies in the U.S. typically pay quarterly dividends, while companies outside the U.S. generally pay annual or semi-annual dividends. Dividends are normally paid based on the number of shares you own, also known as a per-share basis. A dividend must be approved by a company's board of directors. Property dividends are also known as "dividends in kind," meaning that they are dividends distributed in a form other than cash.

As an example, Company A's board of directors approves a property dividend, which it issues to its 10,000 shareholders. The asset Company A distributes is worth $500 to each shareholder. The fair market value of the assets being paid to shareholders in total is $5 million. Each of the shareholders of Company A may then decide to sell or hold onto the asset.