What is a Dividend?
A Dividend is a portion of company earnings distributed to some or all of its investors. If you own the right type of shares and the company you invested in is doing well financially, you might receive these payments regularly.
Why Do Companies Pay Dividends?
Companies generally share some of their profits with investors when they have enough cash left after expenses.
This practice is fairly common, particularly among big, stable corporations. Investors have cuntless ways how to share their money, and a healthy dividend can make the difference in attracting their capital to support or drive up share prices. In exchange, the shareholders collect a nice loyalty bonus.
How Dividends Are paid
Dividends are distributed regularly (typically twice per year) or on a one-off basis. In most cases, they are declared during the course of the fiscal year (the interim dividend) and at the end (the final dividend).
Occasionally, a company may announce a special dividend too. These are one-off payments made to shareholders usually after receiving a big windfall.
When a company's board of directors agrees to pay a dividend, a set sum per share will be allocated.
Important Dates to Take Note of:
- Declaration Date: The day the board reveals its intention to pay a dividend.
- Ex-Dividend Date: Investors must buy shares before this date to qualify for the upcoming dividend.
- Record Date: This is the date the company uses to determine which shareholders are invested and entitled to the dividend.
- Payment Date: The dividend is dispensed and appears in the investor's account. This is around one month after the record date.
Do you pay Tax On Dividends?
If you earn more than £2,000 from dividends In a year you may need to inform HMRC. Payments over this amount are taxed in the following way:
