Hi all,

Should dividend be paid out from the retained earnings? Should it be paid out from the earning of current year and pay out in the middle of the year? (i.e. current year's earnings is not yet in the retained earnings account)

Dividend should be paid from retained earnings. It is not paid from net income for the year but after transferring net income for the year to retained earnings then you can pay dividend. The entry will be
Dr. Retained earnings
Cr. Cash

Dividends can be paid only from the profits that are available for distribution. It is permissible to pay dividends in the current year provided there is sufficient balance in the retained earnings.