What is an Omitted Dividend?

An omitted dividend is one that would normally have been declared, but for which the board of directors did not vote. This usually occurs when a corporation is experiencing significant financial difficulties, and the board feels that the company needs the cash to meet its current needs. The decision to omit a dividend can be a large one, since investors may react by bidding down the price of the company's stock. This is particularly the case when a large part of the investor base is comprised of investors who rely on the firm’s dividend payments.

There are multiple reasons why a board of directors might elect to omit a dividend, including the following:

There is not sufficient cash available to pay out a dividend
A debt agreement states that no dividend can be paid out until the debt has been paid off
The board wants to conserve cash for a capital project or for anticipated working capital needs