What are dividends?

Dividends are money that is distributed by companies to their shareholders. Dividends are paid with after tax profit. Typically, companies will use some of the profits from the previous year to expand their current operations. This is called retained earnings. The rest of the cash is either kept for future endeavors, or redistributed to the shareholders as dividends. Younger companies will typically not pay dividends, since the company tries to build up cash reserves for expansion.

In South Africa, dividends are taxed at a flat rate of 20%. Depending on the company’s dividend policy, companies¬† will typically pay dividends once or twice per year. When companies are owned through an Exchange-Traded Fund (ETF) or unit trusts, investors still receive the dividends. All dividends received during the quarter will be paid to investors at the end of the quarter.