President Trump Promised to Pay Americans a $5,000 “Trump Dividend” After the Midterm Elections. But That’s Not How Dividends Work.

If you're an investor, you probably heard something on the first day of the Republican midterm convention that made you take notice: President Donald Trump promised Americans $5,000 if the GOP retains the House and the Senate in November's elections.

"If the Republicans win, you win with us, and you get $5,000," he said. "It will be called the Trump Dividend."

He also compared the promised payout to a corporate dividend, saying it would be "very much like a successful company would do a cash distribution to its shareholders."

Image source: The White House.

This isn't the first time that Trump has promised cash to Americans. He pledged a DOGE dividend at the beginning of his first term, which would have been paid from savings that Elon Musk and his short-lived Department of Government Efficiency (DOGE) would have cut from the federal budget. And he promised tariff refunds to be taken from import taxes that the government was collecting in its ongoing trade wars. Neither of those payments happened.

But it's also important to recognize the so-called Trump Dividend isn't a dividend at all -- at least, not in the way the president is describing it, because his version of a Trump Dividend isn't how dividends work.

Here's how dividends work

Dividends are paid to shareholders of companies -- the stock that you own provides you with a small piece of that corporation, and the board of directors settles on a dividend policy and payment, based on the company's growth goals, earnings, and cash flow.

For example, Coca-Cola (NYSE:KO) reported revenue of $13.4 billion in the second quarter and, after expenses, net income of $4.42 billion. It paid $2.28 billion in dividends to its shareholders, or $0.53 per share. Coca-Cola is one of the most stable companies in the world, and it has increased its dividend payment for 64 consecutive years.

On the other hand, companies that are not consistently profitable would struggle to pay dividends. Snap (NYSE:SNAP), the owner of the Snapchat social media platform, still doesn't turn a profit due to heavy operating expenses. Despite having 971 million monthly active users and 19% revenue growth in the second quarter, Snap lost $164 million. And a dividend payment isn't in the cards.

The U.S. doesn't have profits to distribute

Trump compares the U.S. government to a profitable corporation, but unlike Coca-Cola and other top dividend-paying companies, the federal government is deeply in the red. The national debt recently hit $40 trillion, straining the economy and bond markets, and the Congressional Budget Office projects a $2.1 trillion deficit for this fiscal year.

The Trump Dividend would cost $1.23 trillion if paid to every adult American. Imagine a publicly traded company losing $2.1 trillion in a year while also promising $1.23 trillion in dividend payments; it would have to find a way to raise that money by selling off assets, raising revenue, cutting spending, or borrowing. There are no profits to finance a traditional dividend payment. It just wouldn't happen in a corporation.

"The idea that we've had fiscal success is backwards and bordering on laughable," Marc Goldwin, the senior policy director at the Committee for a Responsible Federal Budget, told The Associated Press. "We don't have surpluses to give away.”

Trump's promised "dividend" can be called a lot of things -- a rebate, a payment, a stimulus, or just an election gambit. But comparing it to a corporate dividend from a successful company doesn't add up.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.