A dividend that is paid out of paid-in capital rather than from current net profits or retained earnings. Unlike, stock dividends, returns of capital are distributions. In general, returns of capital are tax-exempt with respect to a stockholder at the time of payment. However, they have the effect of adjusting the basis of the stock downward, resulting in a larger capital gain or a smaller capital loss at the time the stock is sold.

The return of capital is also known as capital dividend.