Dividends for Share CFDs
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|Company||Monday 22/03||Tuesday 23/03||Wednesday 24/03||Thursday 25/03||Friday 26/03|
|Altria Group Inc (MO.N)||0.86|
|Medtronic PLC (MDT.N)||0.58|
*Expected dividend adjustments stated in full points per share. Long positions on US Equities will incur a 15% withholding tax adjustment.
What are dividends?
A dividend is a distribution of a portion of a company’s earnings to its shareholders. Dividends are often issued as cash payments if you own the underlying share, although they can also be paid out to investors in the form of additional shares.
Key features of dividends:
- Dividends are an incentive and a form of compensation for the shareholder, normally paid out quarterly or semi-annually
- They're one of the primary reason’s investors are attracted to a business
- Ordinarily, the greater the cash flow of the business and profitability, the more likely a percentage of that capital will be returned to shareholders
- Dividends are a great way to assess the financial health of a business to investors.
Of course, not all companies make these payments. Many high growth companies may choose not to return cash to shareholders but will reinvest the funds into the business if they feel the capital can better reward shareholders through greater earnings growth. In this case, investors are happy to forgo a dividend in the hope of increased capital appreciation.
What does ex-dividend mean?
The ex-dividend date is the day on which the stock no longer includes an entitlement to the upcoming dividend payment.
- It's usually one business day before the dividend is paid out by the company
- Traders opening a position on the ex-dividend date won't be entitled to, or are required to pay, the dividend on their positions
- The value of the stock will fall on this date because of the dividend payout.
What do dividends mean for traders?
When a company pays out a dividend, all things being equal, the share price of that company should fall by that amount. This is because the company has paid cash held on its balance sheet to shareholders and that cash component is a consideration for attributing a theoretical value to the company.
Key points to note:
- Always remember that because dividend payouts are scheduled events, traders aren't able to profit or lose from the ensuing price action
- If a trader has an open position during a dividend adjustment, we know there's no financial impact on your trading account
- We do this by either debiting or crediting you with the same amount you have incurred on the running profit or loss due to the dividend adjustment.
You'll find this in your trading account history, which you can find on your trading platform.
Timing the adjustment
On the market open of ex-dividend date, the shares will decline by the amount of the dividend paid to shareholders.
Gold miner company X is trading at $10 and they pay a $0.50c dividend. Aside from other market variables, X should reopen (its ‘ex-dividend’ date) at $9.50.
The adjustments in share CFDs are more straightforward than equity index CFDs, which work with the same concept, but are slightly different. Find out more here.