Guide · Path 4, Dividends · Beginner
How dividends work: when you get paid and how much is left after tax
A dividend is the part of its profit that a company pays out to shareholders in cash, usually once or a few times a year. You get it if you own the share before the ex-dividend date. Tax is usually taken before the money reaches you, at a rate that depends on where you and the company are based.
Key points
- A dividend comes out of the company's profit and is not guaranteed: the company can cut or cancel it at any time.
- The dividend yield shows what percentage of the share price you receive each year.
- To get the dividend, buy the share no later than the last trading day before the ex-dividend date.
- Dividends are usually taxed at source, and your home country may tax them too, with a credit for the tax already paid.
- For US shares, the W-8BEN form cuts the US tax withheld from 30% to the treaty rate for your country.
What a dividend is and where the money comes from
A company that makes a profit has two options: keep the money to grow (new factories, staff, acquisitions) or pay part of it to shareholders. The part paid out is the dividend. If you own a share, you receive the dividend for every share you hold.
Companies that pay dividendsfor example banks, utilities, energy
- cash in your account, year after year
- usually large, stable companies
- they tend to grow more slowly
Companies that don't payfor example many tech firms
- they reinvest all their profit to grow
- your gain comes from a rising share price
- you get no cash until you sell
Neither is better in principle. A company that reinvests its profit well can earn you more over the long run than one paying big dividends.
How to calculate the dividend yield
The dividend yield shows what percentage of the share price you get back each year as dividends. The formula: the yearly dividend per share, divided by the share price.
Example: you own 100 shares at $50 each, so $5,000 invested. The company pays a dividend of $2.50 per share. The yield is 2.50 divided by 50, which is 5%.
Another useful number is the payout ratio: the share of profit that goes to dividends. If a company pays out almost all its profit, the dividend can be cut in the first weak year.
The ex-dividend date: when you need to buy by
Each dividend has three key dates. The one that matters to you is the ex-dividend date: from that day on, anyone who buys the share no longer gets the announced dividend.
- Last day to buyBuy by this daythe trading day before the ex-dividend date
- Ex-dividend dateThe price drops by about the dividendbuyers from today don't get this dividend
- Payment dateThe cash arrivesa few days or weeks after the ex-dividend date
There is also a record date: the day the list of shareholders who get paid is drawn up. On EU exchanges, the ex-dividend date is one business day before the record date. In the US, since May 2024, both fall on the same day.
How dividends are taxed
Dividends can be taxed in two countries, but you shouldn't pay twice on the same money: the company's country withholds tax before paying you, and your home country may tax the dividend too, minus what was already withheld abroad. Rates depend on your country, so check your local rules.
| Where the dividend comes from | What usually happens | What you do |
|---|---|---|
| A company in your own country | tax is often withheld at source, or you declare it | check whether anything is left to declare |
| A US company, with a W-8BEN | the US withholds the treaty rate for your country | your home country may ask for the difference |
| A US company, without a W-8BEN | the US withholds 30% | you usually can't recover the extra |
Some accounts are tax-free. In a UK ISA, for example, you pay no tax on dividends. See the guide to investment taxes.
Example for a US share with a W-8BEN on file, at an example treaty rate of 15%: you get a $100 gross dividend and $15 is withheld in the US. If your home rate is 25%, you owe $25 at home, minus the $15 already paid, so $10 more. How to fill out the form is in the W-8BEN guide.
Reinvest your dividends or spend them?
If you don't need the money now, you can use dividends to buy more shares. Next year you then get dividends on the new shares too: that is compound interest applied to dividends.
Some brokers do this automatically through a dividend reinvestment plan (DRIP). If you invest through ETFs, you can simply pick an accumulating ETF, which reinvests dividends for you.
- Picking shares by yield aloneA very high yield is often a sign that the dividend will be cut.
- Buying the day before the ex-dividend date to “catch” the dividendThe price falls on the ex-dividend date by about the amount you receive, and you also pay tax.
- Forgetting the tax on foreign dividendsAny difference between your home tax and the tax withheld abroad is yours to declare and pay.
Test yourself
A share costs $40 and pays a $2 dividend a year. What is the dividend yield?
2 divided by 40 is 0.05, which is 5% a year.
The ex-dividend date is Wednesday. What is the last day you can buy and still get the dividend?
You need to own the share at the end of the day before the ex-dividend date, so Tuesday.
You own US shares but never filled out a W-8BEN. How much US tax is withheld from your dividends?
Without the form, the US withholds the full 30%. The W-8BEN is what lets you claim the lower treaty rate.
Done. You can move on to the next guide.
Frequently asked questions
When are dividends paid?
Each company announces its dates in advance. Many US companies pay every quarter; many European companies pay once or twice a year. Payment usually comes a few weeks after the ex-dividend date.
How much tax do I pay on dividends?
It depends on where you live and where the company is based. Tax is often withheld before you get paid, and your home country may ask for more. Check your local rules.
If I sell after the ex-dividend date, do I still get the dividend?
Yes. If you held the share at the end of the day before the ex-dividend date, the dividend is yours, even if you sell afterwards.
Why does the share price fall on the ex-dividend date?
Because the dividend cash leaves the company, and anyone buying from that day doesn't get it. The price usually falls by about the dividend amount.
Our guides are for information only. They are not a recommendation to buy or sell. Sources: IRS guidance on Form W-8BEN, exchange rules on dividend dates. Last checked: October 22, 2026.