When does a company pay dividends

The dividend - distributions to shareholders

The Daimler group is one of the companies that paid the most dividends. In total, almost 3.5 billion euros were paid out to everyone who owns shares in the group. Allianz was in second place for the highest dividend payments with a total of 3.3 billion euros.

Thus, stocks seem to be more lucrative than ever for investors. Reason enough to find out more about the payouts. In this article you will therefore find all the important information about the dividend.

General information on the dividend

A dividend is a share of the profit that a company pays out to its shareholders and thus the proportionate owners. Another term for the share is therefore "dividend paper". However, dividends are only mentioned in the case of stock corporations. If co-owners of a GmbH receive a share in the profits, it is called a profit distribution. Usually dividends are paid once a year.

Types of dividends

There are several ways in which profits can be distributed to shareholders. The following types of dividends can be distinguished:

  • Stock dividend: This term is derived from the English word for “share”, “stock”. If a shareholder receives his share of the profits in the form of a stock dividend, he does not receive any cash. Instead, he receives the profit in the form of additional shares in the company. If a company is growing rapidly and high price gains are to be expected, a stock dividend can therefore be an advantage. This form of profit distribution is also known as “bonus shares” or “bonus shares” if the shares paid out belong to the same company. If additional shares are issued as dividends, this is also known as a “share split”.
  • Cash dividend: This is a direct distribution of profits to the account of the respective shareholder. How much profit each shareholder will receive per share is determined in advance.
  • Dividend in kind: In this case, shareholders receive a distribution in the form of material assets in accordance with Section 58 Paragraph 5 and Section 174 Paragraph No. 2 of the Stock Corporation Act (AktG). The range here is very wide. “Real assets” can be, for example, shares in subsidiaries, but also tangible goods such as cars or the products manufactured by the company.

Where can shareholders find the current share prices?

There are several ways to stay up to date on stock prices.

  • Teletext: Teletext is a common and simple means of calling up current stock prices. In the teletext of ARD, shareholders can find the prices from page 720, on n-tv, for example, from page 200.
  • Financial and daily newspapers: Daily newspapers always list current prices for national and international stocks in the financial section. However, depending on the exchange, the data may no longer be up-to-date when printing. Financial newspapers usually offer a detailed service on current share prices. Well-known financial newspapers include the “Financial Times” and the “Handelsblatt”.
  • Stock market magazines: There are numerous stock market magazines such as “Der Aktionär” or “Capital” in print. However, print versions have a disadvantage when it comes to keeping the data up-to-date.
  • Internet pages: Anyone looking for current stock exchange prices will quickly find many useful contact points on the Internet. Both the stock pages of the public broadcasters and many private websites offer an overview of various stock prices. In addition, investors often have the option of being able to access current prices directly via the website of their bank or via the online custody account.

These advantages arise for shareholders

Shareholders are shareholders in a company. You are therefore a co-owner. As such, you have the opportunity at shareholders' meetings to have a say in which direction a company should take. However, the possibility of co-determination for private shareholders is usually limited. However, there are shareholders' associations that have more influence.

A great advantage of shareholders is that they are not responsible for the success of the business, but only benefit from a possible dividend. For example, if the company makes losses or if the procedure no longer meets the expectations of the shareholder, he sells his shares and moves to another stock corporation.

Tax payments on dividends

As with all investment gains, shareholders must pay taxes on dividends. One often speaks of “dividend taxes”, in fact it is the flat tax.

The tax rate for investment income from dividend payments in Germany is 25 percent. The solidarity surcharge of 5.5 percent and, depending on the denomination of the investor, the church tax are also added.

The income from dividends must be reported on the income tax return.

Allow the allowance to be credited!

Those who stay under the exemption of 801 euros as a single and 1,602 euros as a couple do not have to pay tax on the income.

Example:

Anyone who collects EUR 2,000 in dividends as a married couple can have the tax exemption of EUR 1,602 offset. So there are 398 euros left for taxation. From this, 99.50 withholding tax is deducted as well as approx. 10 euros church tax and 6 euros solidarity surcharge.

Invest strategically and receive high dividends

Anyone buying stocks can use various strategies to keep dividend payments as high as possible. A strategy that is widely used is the so-called "dogs-of-the-dow" strategy.

The idea behind the Dogs of the Dow strategy

This special investment strategy was developed by Michael B. O’Higgins. He published his ideas in a book called "Beating the Dow," which was published in 2000. O‘Higgins noted that dividends from stocks show more constant growth than company sales or profits.

This led to the idea that a high dividend yield could indicate a possible undervaluation of the stock. O’Higgins therefore mainly bought stocks that were undervalued in order to benefit from the highest possible dividend when distributing profits.

First of all, the top 30 Dow Jones stocks are listed at the beginning of the year. From this list, 10 stocks are filtered out that have the highest dividend yield. The capital to be invested is then distributed over these 10 shares. The shares are eventually held for a year. A new evaluation will only take place at the beginning of the new year.

The success of the strategy

O'Higgins was able to show that his strategy was successful. It is particularly recommended for investors who want to earn high dividends and who want constant growth without large movements.

Why companies pay dividends

Companies pay dividends to shareholders for a variety of reasons. For one, shareholders are rewarded for investing money in the company.

On the other hand, the company's own return is not influenced, since the surplus alone does not make the corporation more profitable.

An alternative would be to focus on growth and invest the surpluses in new employees, machines or business areas. However, this growth strategy carries the risk that no profits can be made or distributions made in the following year.

Disadvantages of the dividend payment

Companies can receive potential disadvantages from dividend payments if the distribution exceeds the surplus or profit.

It can happen that a high dividend is agreed at a shareholders' meeting, but this does not correspond to the profit. The company then has no more capital to invest.

Frequently asked questions about dividends

Who will receive the dividend?

The dividend is paid out to shareholders. This will give you a share in the profits of a stock corporation and will reward you for making your money available for investments.

How much is the dividend?

How high the dividend is usually depends on the amount of profit. As a rule, the higher the profit, the higher the dividend for shareholders. However, companies can determine how much dividends they will pay out themselves. At the general meeting of the stock corporation, the management board makes a proposal, which the shareholders approve. It can also happen that a decision is made not to pay out a dividend. This is the case, for example, if the company has made heavy losses or if it is supposed to bring tax advantages for the shareholders.

How long do you have to be in possession of the share to be eligible for dividends?

Theoretically, every shareholder who has bought shares in the company no later than the day before the general meeting is entitled to dividends. The dividends are then usually paid out on the next trading day after the general meeting.

How do I get the dividend?

Dividends are automatically transferred to the shareholder's account. If a shareholder wishes to convert the cash dividend into a stock dividend, he must apply for this.

When will the dividend be paid out?

Dividend payments are usually made once a year. Some companies distribute profits to their shareholders on a quarterly basis.

What is an ex-day?

The ex-day is the first day after the general meeting on which the amount of the dividend was determined. Anyone who has acquired shares up to one day before the ex date will benefit from the distribution.

Does the company have to make the profit distribution?

Shareholders acquire the right to participate in a profit distribution. But companies are not obliged to pay dividends. Shareholders cannot receive any profit on their shares either. However, they can make a profit if they sell the stock after the price rises. Many public companies pay dividends so shareholders don't jump out and pull their money out.