dividends represent a particular type of income that is received by shareholders of joint-stock companies.
Dividends, from a technical-accounting point of view, represent shares of profits that a joint-stock company decides to distribute to its members, subject to a specific meeting resolution.
Dividends therefore constitute the remuneration of the capital invested by the shareholders in the corporate structure.
To evaluate the quality of dividends, the concept of opportunity cost is usually used in business economics. What is opportunity cost?
The opportunity cost represents the alternative lost profit that would have been obtained if the same capital had been invested in different destinations.
Consequently, in order to evaluate the economic value of the dividends received, the shareholders of a company must compare their return (in percentage terms for example) compared to other possible forms of investment.
For example, assume that Mr. Rossi invested 10,000 euros in the Alfa company and that these 10,000 euros yielded dividends equal to 1% in a year.
If the same investment had been made in other destinations, how much would it have yielded?
Let’s say that the same 10,000 euros are invested in BOTs, thanks to which Mr. Rossi obtains a percentage return equal to 2%: in this case the opportunity cost is equal to the (negative) difference in return recorded between the investment in the capital of a company and the yield of BOTs.
From a company law point of view, dividends are ratified by the ordinary meeting.
In reality, the decision on how much and when to distribute dividends lies with the administrative body, following the approval of the financial statements.
