Dividendy
What Is a Dividend and How Is It Paid: A Basic Guide
Key takeaways
- A dividend is a portion of company profit that the board proposes and the general meeting approves for distribution to shareholders.
- Dividends in the Czech Republic are subject to 15% tax; the time test does not apply to them.
- A distributing ETF pays the dividend to the investor; an accumulating ETF reinvests it — with a distributing ETF an annual tax liability arises every year.
- Ex-dividend day is the key date: anyone holding the share before it receives the dividend.
- A dividend payment is not "free" — the share price typically falls by roughly the amount of the dividend on ex-dividend day.
A dividend is a portion of a company's net profit that the company distributes to its shareholders as a reward for owning its shares. It is not a gift — it is a share of profit that you, as a shareholder, are entitled to receive.
How a Dividend Comes About
The entire process follows a clear procedure. The board of directors proposes the dividend amount based on the company's results. The shareholders' general meeting approves (or rejects) the proposal. The dividend is then paid on the specified date. Companies that regularly pay and annually increase their dividend are referred to as dividend aristocrats.
Key Dates in the Dividend Calendar
- Declaration date — the date on which the company announces the dividend amount and payment date.
- Ex-dividend day — the most important date: anyone holding the share at the close of trading the day before ex-dividend day is entitled to the dividend. Anyone who buys on or after this day does not receive the dividend.
- Record date — the date on which the company records eligible shareholders (usually 1–2 days after ex-div).
- Payment date — the date of actual payment to the account.
Dividends and Tax in the Czech Republic
In the Czech Republic dividends are taxed at 15%. The time test (exemption after three years of holding) does not apply to dividends — you pay tax every year you receive a dividend, without exception. A distributing ETF pays the dividend to the investor and it is subject to the same rate. An accumulating ETF does not pay dividends — it reinvests them internally, so no annual dividend tax liability arises. Details are in the guide accumulating vs. distributing ETFs.
Why Companies Pay Dividends
Mature companies with limited reinvestment opportunities return cash to shareholders through dividends or share buybacks. A dividend signals financial health and stability — the company must be confident it actually has the cash. That is why dividend shares tend to be less volatile than fast-growing technology stocks that pay no dividend.
This article is not tax advice. Consult a specialist for your specific situation; more on taxation is in the article ETF taxes in the Czech Republic.
FAQ
How are dividends taxed in the Czech Republic?
Dividends are subject to 15% tax. The time test cannot be applied to dividends — you pay tax every year you receive a dividend, regardless of how long you have held the share or ETF.
What is ex-dividend day?
The day from which entitlement to the dividend is determined. Anyone holding the share before this day receives the dividend. Anyone who buys on this day or later does not receive the dividend for this round.
Will I receive a dividend from an accumulating ETF?
No. An accumulating ETF does not pay dividends to your account — it reinvests them automatically inside the fund. No annual dividend tax liability therefore arises, unlike with a distributing ETF.
Why does the share price fall after a dividend is paid?
Paying a dividend reduces the company's net assets by the amount paid out. The market reflects this in the share price approximately on ex-dividend day, when the price typically falls by roughly the dividend per share paid.