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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

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Steve Waters, director of Right Property Group, chats about the latest in property, including CoreLogic’s latest findings, which suggest national home values have increased at the fastest pace in over 30 years, and why he isn’t quite sure this is the case.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about soaring travel stocks, the rising popularity of NFTs and what they are, as well as the sudden meltdown of Archegos Capital Management.

And lastly, tax and super guru Timothy Munro gives his thoughts on Paul Keating’s early release of super verdict, as well as an overview of life after JobKeeper.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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Do all shareholders get dividends?

By Louise Chan

October 16 2018
Share

Invest

Do all shareholders get dividends?

By Louise Chan
October 16 2018

A dividend is the income disseminated to shareholders of publicly listed companies and is distributed from the underlying company’s profits – subject to the discussion and approval of its board of directors.

Do all shareholders get dividends?

By Louise Chan

October 16 2018
Share

Dividends may be distributed as fully franked or partially franked – meaning, the underlying company had already paid the 30 per cent corporate tax, and the imputation credits are issued to shareholders to prevent double taxation.

Do all shareholders get equal dividends?

Not all shareholders get dividends because the release and receipt of this income depends on the type and class of company shares in the investor’s portfolio.

Companies may issue shares with different classes and accompanying perks.

For instance, their issued shares may be divided into these four different classes with the following benefits:

Class A shares: Have voting rights and dividends but are only for high-net-worth investors (i.e. minimum purchase is $100,000 worth of shares).
Class B shares: Have voting rights and dividends but are given to the company’s employees.
Preference shares: Have similar rights but cost 1.5 times the market value of ordinary shares.
Ordinary shares: Cheaper but only have voting rights and a potential for dividend payouts.

In this case, investors with preference shares in their portfolio are assured of dividends, while those who own ordinary shares have to wait for the company’s decision regarding dividend distribution.

Furthermore, the dividends that ordinary shareholders may receive can be smaller than what preference shareholders receive.

The scenario above, however, only serves as an example. Decisions on share class features and dividend payouts still depend on the issuing company.

When do shareholders get paid dividends?

Shareholders usually receive dividends when the underlying company makes a profit and the board of directors decides to distribute dividends over using the money for company purposes.

Why do shareholders get dividends?

Shareholders receive dividends for two main reasons: first is that they purchased dividend-paying shares; second is that the income they receive as dividends is their share of the profits as part-owners of the underlying company.

Not all companies issue dividend-paying shares. Because of this, not everyone with a shares portfolio are entitled to dividend payments. Likewise, the dividend amount is subject to the board of directors’ approval, and the amount that shareholders would receive may vary with each payout.

Which shareholders get dividends?

There are two things to consider before a shareholder can expect to receive a dividend:

Class of share owned
Date of ownership

Class of share owned
As illustrated above, companies may attach different features for each class of share they issue. This means the share class determines if a shareholder is entitled to dividends or not. The class and features of the shares held may also determine the amount of dividends the shareholders receive.

For instance, a preference share may entitle the shareholder to $1 dividend per unit owned, while an ordinary share may only give 60 cents per share. This means that an investor who owns 100 units of preference shares would receive $10 in dividends while another with 100 units of ordinary shares would only get $6.

Date of ownership
There are three important dates to take note of regarding dividend-paying shares: Notice of dividend, cum dividend and ex-dividend.

As its name implies, notice of dividend is when the issuing company announces that dividends will be distributed to its shareholders, the ex-dividend date and the dividend distribution date. Cum dividend is the period leading up to the ex-dividend date – the cut-off date for the transfer of ownership.

An investor who purchases shares during the cum dividend phase may or may not receive the dividends depending on when their ownership was finalised – as processing usually takes three business days. If they officially own the shares by ex-dividend date, they will receive the dividends. However, if they haven’t finalised the transfer by then, the previous owner would get the dividends.

For more information about these dates, read “Share market – basics for beginners”.

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About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

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