# Dividend Variables

This article explains **Dividend variables** in Model Reef.

You will learn:

* What a Dividend variable represents.
* How dividends affect retained earnings and cash.
* How dividends are shown in the Cashflow Statement and Cash Waterfall.
* How dividends interact with valuation outputs.

Dividend variables represent cash distributions made to equity holders.

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### What a Dividend variable is

A **Dividend variable** captures:

* Cash amounts paid out to shareholders or unit holders.
* These can be entered directly or driven by rules such as a percentage of NPAT or equity.

Dividends do not appear as expenses in the P\&L. They are distributions of equity, not operating costs.
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### Dividends in the Balance Sheet

In the **Balance Sheet**:

* Dividends reduce **Retained Earnings** immediately when declared and paid.
* They also reduce **Cash** by the amount distributed.
* Model Reef does not track a separate dividends payable account by default; the impact is considered immediate.

This keeps the equity section aligned with the cumulative NPAT and dividends over time.
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### Dividends in the Cashflow Statement and Cash Waterfall

In the **Cashflow Statement**:

* Dividends appear under **Financing cash outflows**.
* They reduce the cash available to the business and to equity holders in subsequent periods.

In the **Cash Waterfall**:

* Dividends are shown after free cashflow items.
* They form part of the reconciliation between free cashflow to equity and changes in cash and equity.

This makes the relationship between operating performance, financing flows and equity distributions visible.
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### Dividend rules and scenarios

You can model dividends as:

* Fixed amounts per period.
* A percentage of NPAT.
* A percentage of opening or closing equity.
* A residual distribution after a target cash buffer.

Different scenarios can use different payout policies, for example:

* Growth scenario with low or no dividends.
* Steady state scenario with higher payout ratios.
* Stress scenario with suspended dividends.

Because each scenario is a separate model, you can safely explore different dividend policies without affecting the base case.
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### Dividends and valuation

Dividends affect valuation by:

* Reducing reinvested cash and therefore future growth capacity.
* Providing explicit cash returns to equity holders that are captured in FCFE and IRR.
* Influencing equity money multiple and payback.

Model Reef uses free cashflows to equity and terminal value to estimate equity value, with dividends forming a part of the cashflow stream.
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***

## Related articles

* [New Product Launch Forecast](/use-cases/consumer-goods-fmcg-and-cpg-manufacturers/new-product-launch-forecast.md)
* [Build a Capex & Depreciation Model](/how-tos/operations-and-unit-economics/build-a-capex-and-depreciation-model.md)
* [Naming (Variables)](/help/building-your-model/naming-variables.md)
* [Period Selector](/syntax/understanding-the-interface/period-selector.md)


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