A dividend is the portion of a company's profit that is paid out to its shareholders. If you own a share in a company, you are a shareholder in that company. This means that you own a small part of the company. If the company is successful and makes a profit, it may decide to distribute some of that profit to its shareholders - this is the dividend.
They offer shareholders a way to benefit directly from the company's financial success without having to sell their shares. The amount of the dividend is proposed by the company's Executive Board and must be approved by the shareholders at the Annual General Meeting.
In summary, a dividend is a profit-sharing scheme for shareholders that provides regular income from their investment.
A dividend distribution is the process by which a company distributes a portion of its profits to its shareholders. This distribution usually takes the form of cash, but can also be in the form of additional shares or other assets.
Here are the main steps and features of a dividend distribution:
Dividend distributions are an important incentive for investors, as they represent a regular source of income and offer a direct share in the company's financial success. For the company itself, it is also a way of creating trust and attractiveness among shareholders.
Dividends can be distributed to shareholders in various forms. The following different types of dividends offer companies and shareholders different ways to share profits and manage capital. Here are the main types of dividends:
| Type of Dividend | Description | Characteristics | Example |
|---|---|---|---|
| Cash Dividend | A Dividend payment in the form of cash. | The most common form of dividend payment, where shareholders receive a certain amount of money per share. | A company pays a dividend of 1 euro per share. |
| Stock Dividend | A Dividend payment in the form of additional shares. | Shareholders receive new shares instead of cash. This increases the number of shares in circulation. | A company issues one additional share for every 10 shares held. |
| Property Dividend | A Dividend payment in the form of tangible assets or services. | Rarer form of dividend where shareholders receive physical goods or services. | A company gives its shareholders products that it produces, such as wine from a vineyard. |
| Interim Dividend | A Dividend payment within the financial year, before the main dividend payment. | This dividend is often paid after interim financial statements and signals management's confidence in the financial health of the company. | A company pays an interim dividend after six months before paying the main dividend for the year. |
| Final Dividend | The final Dividend payment for the financial year, resolved at the Annual General Meeting. | This dividend is paid after the end of the financial year and approval by the shareholders at the Annual General Meeting. | A company distributes a final dividend after the annual balance sheet. |
| Special Dividend | A one-off Dividend payment that is paid in addition to the regular dividends. | This dividend is often paid due to exceptionally high profits or special events. | A company sells a subsidiary and distributes part of the proceeds to shareholders as a special dividend. |
| Optional Dividend (Scrip Dividend) | Shareholders have the choice of receiving the Dividend either in cash or in the form of additional shares. | This option allows flexibility and can help the company to maintain liquidity. | Shareholders can choose to receive their €1 dividend in cash or in the form of shares. |
| Liquidating Dividend | A Dividend payment that comes from the company's capital and not from profits. | This dividend is often paid when a company is liquidated. | A company is dissolved and the remaining capital is distributed to the shareholders. |
| Buyback Dividend | An indirect form of Dividend where the company buys back its own shares. | This reduces the number of outstanding shares and can increase the value of the remaining shares. | A company buys back 5% of its own shares and thus indirectly distributes capital to shareholders. |
All shareholders of a company who own shares in that company on the so-called record date (ex-dividend date) receive the dividend. Here are the most important points that determine who receives the dividend:
To receive the Dividend, you must:
It is important to note that ownership of the share on the ex-dividend date is the key to the dividend payout. Everyone who owns the share on this date will receive the dividend, regardless of how long they held the share beforehand.
The frequency of dividend payments can vary depending on the company and geographical location. The most common payout intervals are:
The exact frequency of a company's dividend payments is usually set out in the company's articles of association or in the financial information published by the company's management. Shareholders can find this information in the company's annual reports or on its investor relations website.
Dividends are paid out in several clearly defined steps and can be paid out in various ways. The main methods of dividend payment are explained below.
The following diagram shows the methods of dividend payment that exist.
The method of dividend payment depends on the preferences of the company and the choices available to shareholders. It is important to know the specific dividend policy of each company in order to select the preferred method.
Important Terms for
Dividend Explained
| Dividend | The part of the profit that is distributed to the shareholders of a company. Dividends can take the form of cash or additional shares. |
|---|---|
| Dividend Yield | The ratio of the annual dividend to the current share price, expressed as a percentage. It shows how much dividend a shareholder receives in relation to the capital invested. |
| Ex-Dividend Date (Ex-Date) | The record date from which a share is traded without entitlement to the next dividend payment. Shareholders who buy the share on or after this date do not receive a dividend. |
| Record Date | The date on which the company prepares the list of shareholders entitled to receive the dividend. It is usually one business day after the ex-dividend date. |
| Payment Date | The date on which the dividend is actually paid out to the entitled shareholders. This date is often several weeks after the ex-dividend date. |
| Cash Dividend | A dividend payment in the form of cash. This is the most common form of dividend payment. |
| Stock Dividend | A dividend payment in the form of additional shares instead of cash. Also known as a stock dividend. |
| In-kind Dividend | A dividend payment in the form of non-cash assets or services instead of cash or shares. |
| Interim Dividend | A dividend payment made within the financial year prior to the main dividend payment. It is often paid after interim financial statements. |
| Final Dividend | The final dividend payment for the financial year, which is declared and paid after the Annual General Meeting. |
| Dividend Policy | The strategy of a company regarding the distribution of profits to shareholders. It can include, for example, a constant dividend or a dividend as a percentage of profits. |
| Dividend Aristocrat | A company that has continuously increased its dividend payments over a long period of time (at least 25 years). These companies are considered particularly solid and reliable. |
| Dividend Cut | A reduction in the dividend paid compared to previous payouts. This can be a sign that the company is experiencing financial difficulties. |
| Dividend Payout Ratio | The proportion of profit paid out as dividends to shareholders. It is calculated as (dividend per share / earnings per share) x 100. |
| Dividend Reinvestment Plan (DRIP) | A plan that allows shareholders to automatically reinvest dividends received in additional shares of the company, often without transaction fees. |
| Dividend Discount | The fall in the price of a share on the ex-dividend date corresponding to the amount of the dividend paid. |
| Dividend Yield Strategy | An investment strategy that aims to invest in stocks with high dividend yields in order to generate regular income. |
| Dividend Growth Strategy | An investment strategy that aims to invest in companies that continuously increase their dividend payments. |
| Accumulation | The retention of profits within the company rather than distributing them as dividends. Retained earnings are often used for reinvestment. |
| Scrip Dividend | A form of scrip dividend where shareholders have the choice of receiving the dividend either in cash or in additional shares. |
These terms provide a comprehensive overview of important aspects and concepts related to dividends and help investors to develop a better understanding of their dividend strategy and decisions.
The taxation of dividends depends on various factors, including the shareholder's country of residence and the legal form of the company. Here is an overview of how dividends are taxed in Germany:
The following table summarizes the advantages and disadvantages of dividends and helps investors to weigh up the potential benefits and risks of dividend investments.
| Advantages | Disadvantages |
|---|---|
| Regular income: Dividends provide a steady source of income that is independent of fluctuations in the share price. | Tax burden: Dividends are subject to taxation, which can reduce the net yield. |
| Stability and security: Companies that pay regular dividends are often financially stable and well established. | Share price decline on ex-dividend date: The share price often falls by the amount of the dividend on the ex-dividend date. |
| Inflation protection: Dividends can be increased regularly, providing some protection against inflation. | No guarantee: Dividend payments are not guaranteed and can be reduced or suspended at any time. |
| Signal of financial strength: A reliable dividend payment can be a sign of a company's financial health. | Missed growth opportunities: Companies that pay high dividends may invest less in growth and expansion. |
| Reinvestment: Dividends can be reinvested in additional shares, which can accelerate portfolio growth. | Dependence: Too strong a focus on dividend stocks can reduce portfolio diversification. |
| Attractive to certain investors: Dividend stocks are particularly attractive to income-oriented investors, such as retirees. | Administrative burden: Dividends need to be managed and taxed, which means additional work. |
The dividend yield is a financial indicator that shows how much dividend a shareholder receives in relation to the current share price. It is expressed as a percentage and provides investors with an indication of how attractive a share is in terms of its dividend payments. The dividend yield helps investors to assess the return on their investment in relation to the dividends received.
The dividend yield is a useful measure to assess the profitability of a stock in terms of its dividend payments. It helps investors decide which stocks to include in their portfolio based on expected dividend payments and the current share price.
The dividend yield is an important indicator for investors interested in dividend strategies. It shows how much dividend a shareholder receives in relation to the current share price. Here is a step-by-step guide to calculating the dividend yield:
By calculating the dividend yield, investors can make informed decisions about buying or selling shares based on the expected dividend payments.
The dividend yield in this example is 5%.
Difference between
Dividend and yield
| Criterion | Dividend | Dividend Yield |
|---|---|---|
| Definition | The amount of money distributed to shareholders per share. | The ratio of the annual dividend to the current share price, expressed as a percentage. |
| Calculation | Total dividend / number of shares outstanding | (annual dividend / share price) x 100 |
| Significance | Absolute amount that a shareholder receives per share. | Percentage yield that a shareholder receives based on the current share price. |
| Example | If a company pays a dividend of EUR 2 per share. | If the share price is EUR 40 and the annual dividend is EUR 2, the dividend yield is 5%. |
| Factors | Company profits, dividend policy of the company. | Share price, amount of dividend paid. |
| Benefit for investors | Direct source of income. | Measure of the profitability of an investment relative to the share price. |
| Changes | Can change depending on how much the company pays out. | May change daily as the share price fluctuates. |
| Example calculation | Dividend per share: 2 euros | Dividend yield: (2 euros / 40 euros) x 100 = 5 % |
Both key figures are important indicators for investors. While the dividend represents a direct source of income, the dividend yield gives an indication of how attractive a share is compared to its current price.
The following differences mean that institutional investors can generally act more efficiently and effectively, but are also exposed to greater regulatory and operational complexity.
| Criterion | Private Investor | Institutional Investor |
|---|---|---|
| Definition | Individual who invests for their own assets. | Organizations that invest large amounts of capital, often on behalf of others. |
| Examples | Individual investors, families. | Pension funds, investment funds, insurance companies, banks, hedge funds. |
| Capital volume | Relatively small volume of capital. | Very large capital volume. |
| Goals | Personal financial goals, such as retirement provision, asset accumulation. | Professional, often specific financial goals, such as maximizing returns for clients. |
| Resources | Limited resources for research and analysis. | Extensive resources and access to specialized analysis and data. |
| Investment strategies | Diverse, often dependent on personal preferences and risk appetite. | Structured, based on extensive analysis and strategies. |
| Regulation | Subject to standard investor rules and protections. | Subject to strict regulation and supervision, e.g. by financial regulators. |
| Trading volume | Low trading volume, often less than 1000 shares per transaction. | High trading volume, often thousands to millions of shares per transaction. |
| Influence on the market | Low influence on the markets. | Large influence on the markets due to high capital investment. |
| Access to information | Access to public information and personal networks. | Access to exclusive information, research reports and direct contacts to companies. |
| Trading frequency | Lower trading frequency, long-term approach preferred. | Higher trading frequency, often combined with short-term and long-term approaches. |
| Costs and fees | Higher per-purchase fees and often higher administrative costs. | Lower per-purchase fees due to large trading volumes and professional networks. |
| Risk management | Often less sophisticated risk management, depending on individual knowledge. | Professional risk management, use of complex financial instruments for hedging. |
| Investment instruments | Equities, bonds, funds, ETFs, real estate. | Broad spectrum, including derivatives, private equity, hedge funds, real estate, etc. |
| Liquidity | Mostly invested in liquid assets. | Possible to invest in less liquid assets, such as private equity and infrastructure projects. |
| Time commitment | Part-time job or hobby. | Full-time profession with teams of specialists. |
A dividend strategy is an investment approach in which investors specifically invest in shares of companies that regularly pay dividends. The main goal of this strategy is to create a stable and often growing source of income while seeking capital growth. Here are the key aspects of a dividend strategy:
A dividend strategy can be an effective way to combine regular income and long-term capital growth. By selecting stocks with stable and growing dividends, investors can build a robust and potentially inflation-protected portfolio. However, it is important to select companies carefully and monitor the portfolio regularly in order to implement the strategy successfully.
This table provides an overview of different dividend strategies, their main characteristics, and the advantages and disadvantages of each. Investors can use this information to select the strategy that best suits their financial objectives and risk appetite.
| Strategy | Description | Advantages | Disadvantages |
|---|---|---|---|
| High dividend yield | Focus on stocks with particularly high dividend yields. | High current income, attractive for income-oriented investors | Potentially higher risks, as high yields can indicate financial difficulties, share prices can be volatile |
| Dividend growth | Investing in companies that continuously increase their dividend payments (e.g. dividend aristocrats). | Steadily growing income, Signals strong financial health and good management | Requires careful analysis and selection, Potential lower initial yields |
| Stable dividend payers | Selection of companies that have paid stable dividends over many years. | Reliable income, lower risk | Potentially lower growth opportunities, shares may be less attractive when markets rise sharply |
| Dividend reinvestment | Use dividend reinvestment plans (DRIPs) to automatically reinvest dividends in additional shares. | Maximizing the compound interest effect, Potential long-term growth | Additional complexity in tax administration, Not all companies offer DRIPs |
| Sector-based strategy | Focus on high-dividend sectors such as utilities, telecommunications or real estate. | Stable returns from defensive sectors, Potentially lower volatility | Concentration risk, Sector-specific risks |
| International dividend strategy | Investment in high-dividend companies worldwide to diversify and exploit international market opportunities. | Diversification across different markets and currencies, access to potentially higher yields in emerging markets | Currency risks, different tax and regulatory frameworks |
| Dividend ETFs | Investment in exchange-traded funds that bundle a large number of dividend stocks and thus offer diversification. | Simple diversification, less effort required to analyze and select individual stocks | Management fees, dependent on the performance of the ETF as a whole |
| Value dividend strategy | Combination of dividend and value strategy by investing in undervalued companies that pay attractive dividends. | Potentially high total return through price appreciation and dividends, opportunities for capital appreciation and regular income | Requires thorough analysis and regular review, risk that undervalued companies remain undervalued |
Dividends are recognized in several steps. First, the dividend receivable is recognized when the company announces the dividend. The amount of the dividend is recognized as a receivable from the company and at the same time as dividend income. When the dividend is actually paid out, the payment received is recognized. The amount received is credited to the bank account and the previously recorded receivable is settled. In addition, any capital gains tax due must be taken into account and posted accordingly by posting the tax amount as an expense account against the dividend receivable or directly against the bank account. This ensures that both the income from dividends and the associated tax deductions are correctly reflected in the accounts.
Stocks that pay dividends are usually from established and financially stable companies that regularly generate profits. These companies are often found in industries such as utilities, financial services, consumer goods, energy and healthcare. Examples include well-known companies such as Coca-Cola, Procter & Gamble, Johnson & Johnson and ExxonMobil. Certain real estate investment trusts (REITs) and some large international corporations also pay regular dividends.
The maximum dividend that a company can pay out depends on several factors, including the profit generated, the company's financial situation and the decision of the Board of Directors and shareholders. There is no fixed upper limit for the dividend, but the company must ensure that it still has sufficient funds for ongoing operations and future investments after the distribution. Ultimately, the amount of the dividend is decided and approved at the Annual General Meeting.
You receive dividends if you own shares in companies that pay dividends. These are either transferred directly to your bank account held with your broker or credited as additional shares, depending on the company's dividend policy and the options you choose. Information on dividend payments can be found in the company's announcements, on your broker's website or on financial portals.
Dividends are paid by listed companies that generate profits and wish to distribute these to their shareholders. These include companies from various sectors worldwide that make regular dividend payments in order to give their shareholders a share in the profits. Certain investment funds, such as real estate investment trusts (REITs) and some closed-end funds, also pay dividends to their investors.
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