What Are Discretionary Dividends?

What Are Discretionary Dividends?
Company profits can be paid to investors as a dividend.

How It Works

In the case of common stock, the board of directors has the discretion to pay out profits to investors in the form of dividends or to reinvest the money in the firm. But a company may also issue preferred stock that guarantees certain dividends to be paid out -- similar to guaranteed payments from bonds. These dividends are non-discretionary because the board of directors is obligated to authorize them.