What is a dividend?

Key Points

• Dividend is the interest on stocks, whether and how much dividend is issued is related to the company's operation situation and dividend policy, usually distributed quarterly, semi-annually, annually, and may also issue special dividends at any time.

• The distribution forms of dividends are usually cash or stocks.

• There are four important dates for dividend distribution: announcement date, ex-dividend date, registration date, payment date.

• Dividend tax for Hong Kong stocks - companies registered in Hong Kong distributing dividends are tax-free, while companies registered outside Hong Kong may be subject to tax; Dividend tax for US stocks - Chinese mainland residents are taxed at 10%, residents from other regions are taxed at 30%.

Concept Explanation

Money has a time value, so lending money through legitimate channels or using it to purchase financial products usually generates interest. What about investing in stocks? In fact, it also yields interest.

The interest on stocks is called dividends. In stock investments, besides gaining from the price difference, another important source of income is dividends. This is the profit distributed to shareholders by listed companies after deducting the reserve funds for future use and welfare funds for employees from after-tax profits.

The company can distribute dividends or not; it can distribute more or less. This is influenced by the company's operation situation and is also related to the company's dividend policy.

The frequency and timing of dividend distribution are often related to the time when the company announces profits, so it is generally distributed quarterly, semi-annually, or annually.

However, if the company earns money through investments or other means outside its core business, it can also distribute dividends at any time, and this type of dividend is called a special dividend.

Distribution Form

There are mainly two ways of distributing dividends: cash dividends and stock dividends.

Cash Dividends: For example, Company A announces a dividend of 0.3 yuan per share. If you hold 1000 shares of Company A's stock, you can receive 300 yuan in cash dividends. You can keep the cash or reinvest it.

Stock Dividends: For example, Company B announces a distribution of stock dividends at a rate of 4%. If you hold 500 shares of the company's stock, you will receive 20 shares of stock dividends. If you are bullish on the company's future development, stock dividends give you the opportunity to achieve greater returns.

Four dates

There are 4 dates to pay attention to regarding the distribution of dividends.

Announcement Date: On this day, the company announces information about the distribution of dividends, including the schedule, dividend amount, relevant terms, etc.

Ex-Date: Those holding stocks before this day can receive this dividend; those who hold on or after that day will not receive this dividend. If cash dividends are distributed, the opening price of the day will be reduced by the amount per share of dividends; if stock dividends are distributed, the corresponding share capital structure will change on that day.

Record Date: On this day, the company identifies the list of shareholders who are eligible to receive dividends, usually 1 business day after the ex-date.

Payment Date: On this day, the company distributes the dividends.

Dividend Tax

Dividends often need to be taxed, and the tax rates vary for investors in different markets and regions.

In the Hong Kong stock market, if the distributing company is registered in Hong Kong, shareholders do not need to pay dividend tax. If the distributing company is not registered in Hong Kong, its place of registration may levy taxes on shareholders such as Hong Kong residents and foreign nationals, with varying tax rates for each.

In the US stock market, the dividend tax rate for Chinese mainland residents is generally 10%, while the rate for residents of Hong Kong and other regions is generally 30%.