What is a bonus and a dividend

The dividend - definition and explanation

As a rule, shareholders benefit from the dividend. It is a kind of bonus for shareholders who pay companies off after a successful financial year.

But the definition of dividends is not that simple. Information about the tax treatment or the informative value of this profit distribution is also important.

Dividend: a brief definition

The dividend is a share in the profits of the shareholders after a company’s financial year has ended.

The amount of the dividend is usually linked to the success of the company, but shareholders are not entitled to receive this bonus.

The shareholders' meeting can also vote against the payment of a dividend. This is done, for example, in order not to weaken the company's capital.

Decision and payment

The amount of the dividend is proposed to the shareholders by the management board at the general meeting. The dividend amount can then be set with a simple majority.

More on the subject: Dividend distribution: what does it mean?

Payment is made one day after the resolution has been passed. There is no dividend entitlement for shares that were purchased, for example, one day after the general meeting (“ex-day”).

However, it is possible for every shareholder to acquire shares in the relevant company up to the day of the Annual General Meeting and to benefit from the distribution.

More on the subject: When are you eligible to receive a dividend?

Tax treatment of dividends

The distribution of the dividend has been taxed with final taxation since 2009. This means a deduction of 25% plus 5.5% solidarity surcharge and any church tax.

The final withholding tax is automatically deducted from the dividend before it is transferred to the relevant account in the securities account.

However, the saver lump sum of € 801 or € 1602 for married couples must be observed. If all income from capital assets is less than the lump sum for savers, the profit is exempt from tax.

Income from capital assets does not only include dividends, but also interest and profits from the sale of investments and futures.

Dividend yield

When defining the dividend, the dividend yield should also be taken into account. In particular, before distributing a dividend, shareholders also calculate the dividend yield.

The expected amount is related to the current price of the share:

Dividend yield: (dividend / share price) x 100%

More on the subject: The dividend yield used to value a stock

The dividend yield is a relatively meaningful indicator for assessing the chances of success and the attractiveness of an equity investment.

Significance of the dividend distribution

Regular and high dividend distributions keep shareholders in the company.

For many shareholders, the amount of the dividend distribution is also an important indicator for assessing the economic stability of the company.

If a company can guarantee high bonus payments, this shows the shareholder that the company is economically strong.

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