What is an equalising dividend?

Before learning about the meaning of an equalising dividend, it is important to understand what kind of situation warrants its payment. Typically, a change in a company’s dividend schedule necessitates releasing equalising dividend payments to its qualified shareholders.

A dividend is a share of a company’s earnings payable to shareholders held in the company’s books of record. Based on the discretion of the board of directors, most companies follow a specific dividend schedule that aligns with its business finances and overall ecosystem of its industry. 

A company can alter its dividend payment schedule, however, this could lead to a loss for its shareholders. To compensate for this loss, companies often declare equalising dividends. These are special, one-time payments contingent on the company’s shift in dividend payment schedule.

How do equalising dividends work?

Publicly-traded companies typically announce dividends to reward its shareholders for their investment within the business. While it is not mandatory for a company to pay dividends, financially healthy companies normally announce regular dividend dates and distribute timely payments to its shareholders. 

However, a company can choose to change its dividend payment schedules if it feels it’s necessary. In such cases, to offset the investor’s loss, companies bring forward equalising dividends.

Example of equalising dividends

For example, consider a company that had previously announced dividend payment to its shareholders in May. Due to financial downtrends, the board of directors decides to push back the payments until July. In order to provide for the earning loss, between May to July, the company may decide to announce one-time equalising dividends to satisfy shareholders until the next regular dividend payment.