what is the difference between retained earnings and dividends 
dividends can be distributed in the form of cash or stock 3 both forms of distribution reduce retained earnings cash payment of dividends leads to cash outflow and is recorded in the books and accounts as net reductions as the company loses ownership of its liquid assets in the form of cash dividends it reduces the company s asset value on the balance sheet thereby impacting re on the other hand though stock dividends do not lead to a cash outflow the stock payment transfers part of the retained earnings to common stock for instance if a company pays one share as a dividend for each share held by the investors the price per share will reduce to half because the number of shares will essentially double because the company has not created any real value simply by announcing a stock dividend the per share market price is adjusted according to the proportion of the stock dividend though the increase in the number of shares may not impact the company s balance sheet because the market price is automatically adjusted it decreases the per share valuation which is reflected in capital accounts thereby impacting the re a growth focused company may not pay dividends at all or pay very small amounts because it may prefer to use retained earnings to finance activities such as research and development r d marketing working capital requirements capital expenditures and acquisitions to achieve additional growth such companies have high retained earnings over the years a maturing company may not have many options or high return projects for which to use the surplus cash and it may prefer handing out dividends such companies tend to have low re 