{"menuItems":[{"label":"What is a dividend?","anchorName":"#what-is-a-dividend"},{"label":"What is the dividend yield?","anchorName":"#what-is-the-dividend-yield"},{"label":"Types of dividends ","anchorName":"#types-of-dividends"},{"label":"Why invest in dividend stocks?","anchorName":"#why-invest-in-dividend-stocks"},{"label":"Not all companies pay dividends","anchorName":"#not-all-companies-pay-dividends"},{"label":"How are dividends paid out?","anchorName":"#how-are-dividends-paid-out"},{"label":"Paying taxes on dividends?","anchorName":"#paying-taxes-on-dividends"},{"label":"How does a dividend reinvestment plan work?","anchorName":"#how-does-a-dividend-reinvestment-plan-work"},{"label":"How to compare dividend-paying shares","anchorName":"#how-to-compare-dividend-paying-shares"},{"label":"Compare share trading platforms","anchorName":"#compare-share-trading-platforms"},{"label":"Dividends explained","anchorName":"#dividends-explained"}]}
When you buy shares in a company, you're effectively buying a piece of that company, which means you're a part-owner. As a shareholder, you're entitled to the company's profits. In investing terms, these are known as dividends.
Learn about the different types of dividends, how they're applied and how they impact your taxable income in this guide.
What is a dividend?
A dividend is a share of a company's earnings given to shareholders as a cash payment into their bank account, usually twice a year.
The size of the dividend you receive is in proportion to the number of shares you own.
The more shares you own, the bigger your dividend payment will be.
For example, let's pretend a company that sells items for household pets called Pets Galore is offering a dividend payment of $0.05 for each share held.
If you owned 1,000 shares, you'd receive a dividend of $50. If you owned 10,000 shares, your dividend payment would be much larger at $500.
What is the ex-dividend date?
To receive a company's dividend payment, you must hold the shares prior to its ex-dividend date. If you buy shares on or after an ex-dividend date, you will be eligible for the next dividend payment, if there is one.
What is the dividend yield?
The dividend yield is presented as a percentage and indicates the value of the dividend payment in relation to the cost of the shares. It is calculated by determining what percentage of the share price is returned to the investor as income.
The dividend yield helps investors compare similar companies. It gives you an idea of which one offers a better return on your money in the form of a dividend.
Dividend yield example
Let's look at Pets Galore again with its dividend payment of $0.05 per share. If the current share price was $2 per share, the dividend yield would be 2.5%. If the share price was instead $0.50 per share, the dividend yield would be a lot better at 10%. Because the yield is calculated using the share price, the yield will change daily as the share price changes.
Types of dividends
There are 3 main types of dividends that are paid at different times:
Interim dividend. This is a dividend paid before the company has calculated its annual earnings. It'll usually be paid at the same time as the company's interim financial statements, usually 6 months into the financial year.
Final dividend. This dividend payment is paid when a company announces its profits for the full financial year. Some companies will only pay a final dividend.
Special dividend. These are bonus dividends and are typically larger than the normal dividends paid out by a company. A company may issue a special dividend to shareholders when it achieves higher-than-normal profits across a certain period.
Why invest in dividend stocks?
Investors who buy dividend stocks usually do so because of the steady income stream that comes from them.
While nothing in investment is guaranteed and it all comes with risks, dividends are usually a sign of a company's well-being. As such, well-established businesses will often look to at the very least pay the same dividend as the previous corresponding period, even in tougher economic times. If they were to cut dividends, it's usually seen as a bad sign by the market, which can result in a lower share price.
Instead of paying shareholders a dividend, a lot of smaller, newer companies will reinvest any profits made back into the company to help it grow. However, many investors are okay with this because if the company is growing, the value of their shares will grow too.
It's also important to note that dividends are never guaranteed. Each company decides what the value of the dividend will be and if there will even be a dividend payment at all, annually. So just because a company pays a large dividend one year doesn't mean it will do this again the following year.
Dividends follow a chronological order of events that shareholders should keep an eye out for.
The company's business operations make it some money.
The company lodges its finances and its board of directors chooses how much to pay out in the form of a dividend.
The announcement date occurs when shareholders can vote on whether or not they approve of the board's plan.
Shares go ex-dividend. When this date is declared, investors must hold the shares the day prior to get any of the dividends.
The company will then have a record date for the cut-off and a payment date for when shareholders will receive their dividends.
Paying taxes on dividends?
Because dividend payments are a form of income, you do need to include these in your total taxable income when you file your tax return.
However, thanks to the franking credits system in Australia, you often won't need to pay much tax on your dividends (or any at all).
Fully franked dividends mean the company has already paid tax on the money at the company tax rate of 30%. So the money isn't being taxed twice by the Australian Taxation Office (ATO), you'll receive a franking credit for the tax already paid on the dividend by the company.
This means that while you do need to include the dividend in your total taxable income, you'll receive a discount credit that will reduce your taxable income by the amount already paid by the company.
How does a dividend reinvestment plan work?
Some companies offer what is called a dividend reinvestment plan (DRP), which allows you to opt in to using your dividends to buy more shares in the company instead of receiving the dividend payment in your bank account.
There are several advantages of doing this, but the main one is you're able to use the money to buy more shares without paying any brokerage fees.
It's also a good, passive way to increase your position in a company gradually over time with little to no effort from you. It's a good set-and-forget investment strategy: once you opt in, it all happens in the background automatically.
One downside of opting in to a DRV is you're unable to use that cash for day-to-day purchases like you could if you had received it in your bank account. You also don't get to choose at what share price you'd like to buy more shares: the shares are automatically bought on your behalf on the date of the dividend payment.
How to compare dividend-paying shares
If you're comparing a bunch of dividend-paying companies, here are a few things to keep in mind.
How often are dividends paid? Some companies pay dividends several times a year while others only pay once.
Have dividends been confirmed? Companies will often confirm in advance their dividend payments for the year ahead.
Are dividends growing in value? Take a look back at the dividends paid by each company over previous years. If the value of the dividend has gradually increased, this is a good sign the company is growing and will likely continue to increase its dividend.
Is it fully franked? If the dividends aren't fully franked, when you file your income tax return you won't receive a credit and you'll need to pay the full income tax on the dividend yourself.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds.
If you’re looking for ways to gain exposure to Bitcoin and other digital currencies, cryptocurrency ETFs could be worth exploring. Find out what crypto ETFs are and how they work in this introductory guide.
Looking for alternative investments? With a ROI of up to 3,593% lego may be worth considering. Read on to find out which lego sets are worth the investment.
Equity crowdfunding offers a unique opportunity for investors and for Australian startups, but Australia’s regulatory framework surrounding crowdfunding still lags behind the rest of the world.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn't a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you're unsure about anything, seek professional advice before you apply for any product or commit to any plan and read any disclosure documents (such as any Target Market Determination (TMD) and/or Product Disclosure Statement (PDS)) issued by the provider before making a decision.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
