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Companies may distribute a portion of their earnings in the form of dividends, to reward shareholders for their investment. It is not a requirement for a company to pay dividends, although if they do, they are usually paid twice a year.
Companies will use a declaration to announce the date of payment and the value of the dividend they intend to pay. A declaration is also known as ‘declaring a dividend’. The information contained within a declaration is often distributed to the shareholder in a letter.
Within the information provided in a declaration, the company will include their ‘ex-dividend’ date. The ex-dividend date is important to note because in order to qualify for the dividend you must own shares on/before the ex-dividend date. It is common for the share price to drop on the ex-dividend date as buyers are not entitled to the dividend past this point.
Payment of the dividend generally occurs sometime between 4 to 8 weeks after the ex-dividend date.
Franking credits are the bonus tax credits that may be received with the payment of dividends. Company earnings are distributed in the form of dividends, whilst company tax that has been paid on those profits is represented through franking credits.
The benefit of franking credits is that they may be used to reduce your taxable income. This is because they represent the company tax paid on the dividend. If you are an investor on a low marginal tax rate you may be eligible to receive a cash rebate on all or part of your franking credits. This refund is distributed by the ATO at tax time.
In lieu of receiving a cash dividend some companies may provide an opportunity to reinvest your dividend and receive additional shares in the company. Shares offered through DRPs are often at a discounted rate, providing additional incentive to the investor.
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The information contained on this website does not constitute the provision of advice or constitute or form part of any offer, solicitation or invitation to subscribe for or purchase any securities or other financial product nor shall it form part of it or form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any securities or prices used in the examples on this website are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not a reliable indicator of future performance. This website may contain material provided directly by third parties. This information is given in good faith and has been derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group nor any of their related entities, employees or directors (together, "Westpac"), nor the Participant, accepts responsibility for the accuracy or completeness of, or endorses any such material. This website may also contain links to external websites. Westpac and the Participant do not accept responsibility for, or endorse the content of, such external websites. Except where contrary to law, Westpac and the Participant intend by this notice to exclude liability for material provided directly by third parties and the content of external websites.