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Dividends: definition and payment
What is a dividend?
A dividend is the payout of a portion of the corporate profit of a company to its shareholders. The Board of Directors of a company makes a dividend proposal, that has to be approved by its shareholders on the Annual Meeting of shareholders. Usually, the dividend is paid out a couple of days or weeks after the meeting, if approved during that meeting. Since a majority of the (Belgian) companies planify their Annual Meeting in April, May or June, it is quite logical that most dividends are distributed in these months. We can distinguish different types of dividends: although a dividend is mostly paid in cash, it also occurs that dividends are paid in shares. The frequency of a dividend payment can differ as well. In Belgium most dividends are paid once a year, but in other countries (e.g. United Kingdom, United States, ...), a quarterly or semestrial dividend payment is more frequent.
How do I know if and when a company will be paying a dividend?
This kind of information is published on the company's website. For most listed companies, you will find a section "investor relations" on their website. In this section, you will be able to find more information on dividends. Usually, this information is published in the (financial) press as well.
In which case are you entitled to a dividend?
In order to be able to claim a dividend, you need to possess the stock on the ex-dividend day. On this day, the value of the dividend will be deducted from the share's value. You need to buy a stock during the day prior to the ex-dividend day at the latest in order to be entitled to claim the dividend. The dividend is deducted from the stock's value before market opening on the ex-dividend day. So, the stock is trading "ex dividend" as of the ex-dividend day. Whoever buys the stock on the ex-dividend day or later won't be entitled to claim the dividend. Example: A certain share has a value of 10EUR and the company decides to pay a dividend of 1EUR . As of the ex-dividend day, the share will have a value of 9EUR . Investors who have the stock on their trading account, will automatically receive the dividend on that account.
How to proceed in case of a dividend payment?
If you are entitled to a dividend, you won't have to do anything. When you have the stock on your trading account, the dividend will be automatically booked on your trading account. You have to take into account that there's often a difference between the ex-dividend date and the date on which the dividend will be paid out (the pay date). The pay date is typically a couple of days or a couple of weeks after the ex-dividend date. The tax that you are due (withholding tax and/or Belgian withholding tax "roerende voorheffing/précompte mobilier") will automatically be withheld by Keytrade Bank.
How do I communicate my preferences with regard to dividends?
In most cases, shareholder cannot make a choice with regard to dividends. A cash dividend is always paid out in cash. In case of a stock dividend, you receive stocks as a dividend. In both cases (cash dividend, stock dividend), no alternatives exist. In case of a choice dividend or a DRIP dividend, there is a possibility to make a choice as shareholder. With regard to stocks listed on Euronext (Brussels, Amsterdam and Paris), it is possible to use a tool on the secured website which allows you to tell us whether you prefer choice dividend (or DRIP dividends) to be paid in cash or stocks (whenever such a choice dividend is offered). By default, Keytrade Bank will opt for choice dividend or DRIP dividend in cash. Where do I find the tool? You can find this dividend tool in the section "Your preferences" of your Keytrade Bank account. Once in the section "Your preferences", please select "Dividend". An exception for your choice? If you wish to receive a choice or DRIP dividend exceptionally in "cash", although your default choice is "stocks", please send us an e-mail to this e-mail address: email@example.com. Please don't forget to mention the following information:
- your name
- your trading account number
- the name of the stock
- your choice for the cash dividend for this stock, despite the fact you have chosen "stocks" as a default choice in the preferences of your Keytrade account.
It works the other way around as well: if you chose "cash" by default, but you prefer the dividend in stocks for a specific choice dividend or DRIP dividend, then you can alert us by e-mail. Please be aware that the election period is often limited in time. Such an election period usually takes a couple of days up to some weeks. Please alert us in time if you want an exception of your default choice for a certain stock. For stocks not listed in Euronext, but another exchange, the default choice is always cash, or the default choice of the customer if this would be different of the dividend cash distribution. On the website, it is not possible to pick your default choice with regard to stocks that are not listed on Euronext.