Dividends explained.
A dividend is a payment a company makes to its shareholders as a way of sharing profits. When you own shares in a company that pays dividends, you can receive regular cash payments just for holding the stock. Most Australian companies pay these twice a year, though some do it quarterly or even annually.
Australia has a unique feature called franking credits. These credits represent the tax the company has already paid on its profits. When you receive a dividend with franking credits, you may be able to offset your own tax bill, making dividends even more valuable for local investors.
To receive a dividend, you must own the share before the ex-dividend date. This is the cut-off point set by the company. If you buy after that date you will not receive the upcoming dividend, and instead the seller keeps it. Share prices often dip slightly on the ex-dividend date to reflect the payout money leaving the company.
Dividends are often compared using a measure called yield. This is the dividend payment expressed as a percentage of the current share price. For example, if a share costs $20 and pays $1 in dividends each year, the yield is 5 percent. Yield helps investors compare the income they might receive from different companies.
In simple terms, dividends are one of the key ways shareholders can benefit from owning companies on the ASX, alongside the chance of share prices rising over time. They provide income, tax advantages through franking credits, and a sign of financial strength when a business can constantly return cash to investors.