What is the difference between profits and dividends

The benefits obtained by the shareholders of a company can come from different ways, such as the sale of their shares having a positive difference or through the payment of dividends by the company. However, many of these financial terms can be a bit confusing, so we decided to explain in this article of .com what is the difference between profits and dividends.

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Definition of terms

We can define the utility of an action as the profits that are generated during a period of time between revenues and expenses. In the case of shares, it would be the difference between their initial value at the beginning of the period and their final value, in case there were benefits.

With respect to dividends, they are that percentage of the profits that the shareholders receive in compensation for holding the share, but they are distributed only if there are benefits.

Differences between profits and dividends

Once we know the characteristics of the two terms, we can distinguish the differences that exist between them:

• For there to be a profit, the existence of dividends is not necessary, but for there to be dividends, there must be utility.
• The total of the dividend that has been agreed upon is delivered, but not all the utility that has been.
• Dividends can be predictable and agreed upon, while the amount of utility is much more unpredictable.
• The profits, the company needs to continue growing, but dividends can be dispensed, so they are paid as a "prize" to shareholders.
• If there is no profit and the dividends can not be paid, they usually accumulate to be paid in the future.