When a corporation declares and pays a dividend, the dividend does not reduce the current accounting period's profit reported on the income statement. In other words, a dividend is not an expense.

Dividends will reduce the amount of the corporation's retained earnings. Retained earnings are reported in the stockholders' equity section of the balance sheet.

If a corporation has very profitable uses for its cash, its future profits might be less if it pays dividends instead of reinvesting the cash dividend amounts into profitable projects.

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