Dividend
A share of company profits paid to shareholders, usually twice a year and often carrying franking credits.
A dividend is cash a company distributes to its owners out of profits. Australian listed companies typically pay an interim and a final dividend each year, and many attach franking credits to them.
Dividend yield expresses the annual dividend as a percentage of the share price. A $40 share paying $2 a year yields 5%, though that figure moves whenever either the price or the payout changes.
Dividends are assessable income in the year you become entitled to them. That applies even when the cash is automatically reinvested rather than paid to your bank account.
Yield moves with price
A share paying $2 a year yields 5% at $40. If the price falls to $30 the yield rises to 6.7% — attractive on paper, but often a signal the market expects the dividend to be cut.
The bit people get wrong
A very high dividend yield is frequently a warning rather than an opportunity. It usually means the share price has fallen sharply because investors expect the payout to be reduced.
Common questions
When do I have to declare a dividend?
In the financial year you become entitled to it, which is generally the payment date. Your annual tax statement from the registry sets out the amounts to declare.
What is the ex-dividend date?
The first day a share trades without entitlement to the upcoming dividend. Buy on or after that date and the dividend goes to the previous owner.
Are reinvested dividends taxable?
Yes. Participating in a reinvestment plan does not defer the tax — you declare the dividend as though you received cash, and the new shares get their own cost base.