What is a Liquidating Dividend?

A liquidating dividend is a distribution of cash or other assets to shareholders, with the intent of shutting down a business. This dividend is paid out after all creditor and lender obligations have been settled, so the dividend payout should be one of the last actions taken before the business is closed. A liquidating dividend is essentially a return of the investors' original capital to them, plus or minus any residual retained earnings or retained losses (respectively) of the business. These dividends tend to be issued as a result of a decline in sales, so investors generally do not find that they have earned a profit on their investment after receiving the dividend.

Why A Liquidating Dividend is Issued

Liquidating dividends are usually paid when the owners of a business do not believe that it is generating an adequate return, or that the market is not placing a sufficient sale price on the entire business. Another option is that the owners no longer want to be involved in the management of the business, and so want to shut it down in an orderly manner.