Share dividends correspond to the part of profits paid to the shareholders of a company that is quoted on the stock exchange.
We can distinguish between two types of dividend payments; a payment in cash or a payment in shares.
Here we will look closely at both types of payment as well as the fiscal factors that apply.
Payment of dividends in cash:
In the case of payment in cash, the company shareholder receives a sum equivalent to the part of profits that was achieved by the issuing company according to the number of shares or parts they possess.
The shareholder’s account is therefore credited generally once per year, after closing the year’s financial accounts. In certain cases, these dividends can be fractions of dividends and can also be paid before the approval of the financial year’s accounts.
Payment of dividends in shares:
Certain companies offer their shareholders the opportunity to be paid with shares. This means becoming the holder of new shares instead of receiving money from the company profits. Of course, to persuade shareholders to choose this method the companies generally reduce these share prices by 10% maximum compared to the share price over the last 20 trading sessions.
When the amount of the dividends does not correspond to a whole number of shares, the shareholder obtains a rounded up number of shares or will have to pay the difference in cash.
This method is advantageous for investors over the long term.
The influence of the dividend distribution on the share price:
It can be very useful to know when a company decides to distribute dividends as such a distribution can have a major effect on the share prices themselves. In fact, when the shareholders are paid their dividends this generally results in a brief drop in the share price.
Therefore, if you know the distribution dates of these companies dividends it can be beneficial to trade this share price on the fall just after the payments over the short term.
The dividend distribution calendar and its function:
The payment of dividends is undertaken regularly on the dates decided by the general committee of each company. Until fairly recently these payments were made annually but in recent years these distributions have started to be paid biannually mainly in order to attract new investors. Many European companies however still pay on a yearly basis, a few days after the dividend amounts have been agreed at the AGM.
It is therefore by using a dividend distribution calendar that you will learn the dividend distribution dates. These calendars are accessible on the websites of the relevant companies and on websites dedicated to the stock markets.
Invest in stock market shares:
To profit from price movements generated by the distribution of a company’s dividends you can use a Forex trading platform to access CFDs and take a selling position.