What happens to my shares position if the company actions cash dividend?
A cash dividend is the portion of profit a company chooses to pay out to its shareholders – usually expressed as a percentage. To be eligible, you would need to hold your position into the market open of the ex-date.
Explained below are the different account types and their processes.
Share dealing and ISA accounts:
As soon as we receive dividend payments for any of the shares you own, we will credit your account with the amount you are eligible for. This usually would occur on, or around, the dividend payment date. It may take a few days after the dividend payment date for us to credit your account, as the dividends are first paid to our broker which need to be cleared then transferred to IG.
Once the payment has shown in your ledger statement and reflected in your available funds, you can choose to hold, withdraw, or reinvest the funds by purchasing more stocks. We’ll also send you a Consolidated Tax Certificate (CTC) which summarises any UK/overseas dividends and interest paid on securities between the dates indicated. The CTC may also be referred to as a Consolidated Tax Voucher (CTV). These are usually generated in May or June, to cover the tax year that has just ended. More information on statements can be found here.
Please note that tax laws are subject to change and depend on individual circumstances. Dividends on the majority of UK shares are paid at 100%. Tax laws may differ in a jurisdictions other than the UK, as international shares are taxed withholding's tax at the source.
Spread bet and CFD account
Spread bet and CFD accounts are derivative accounts used to speculate on price movements and don’t receive cash dividends in the traditional way share dealing or ISA accounts do. Instead, ‘dividend adjustments’ are used to mitigate for the price movements of dividend payments. This ensures no profit nor loss is made from these price movements, as they’re scheduled public events.
Please note that tax laws are subject to change and depend on individual circumstances. Dividends on the majority of UK shares are paid at 100%. Tax laws may differ in a jurisdictions other than the UK, as international shares are taxed withholding's tax at the source.
If you hold a short position, your P/L would increase if a dividend is issued – as funds are being distributed out of the company to shareholders. However, we would debit your account with the amount your P/L increased by to ensure there is no material impact and bring your account down to fair value.
Individual stock example dividend adjustment example
If a dividend of $10 is paid to shareholders of XYZ company, a long position holder’s P/L will decrease by $10 so their accounts will be credited with $10. A short position holder’s P/L would decrease by $10 so will be debited by $10.
Please note: this information is intended as a generic example, and subject to change at any point. It may not apply in every scenario.
How do dividends affect stock indexes?
Dividend adjustments are also used when constituent stocks of an index pay dividends to shareholders. IG publishes forecast dividend adjustments for major global indices. You can find these in the IG Community.
Stock index cash dividend adjustment example
Say you are long £10 a point of the FTSE 100 DFB at 4:30pm when there is a dividend adjustment that takes 7.8 points off the index. Our FTSE 100 DFB price drops by 7.8 points, so your running profit and loss (P&L) is reduced by 7.8 x £10 = £78. We therefore credit your ledger with £78, to negate this drop in P&L.
Now let’s say you’re short two standard lots of Wall Street Cash at 9pm when there is a dividend adjustment of 2.9 points. Our Wall Street Cash price drops by 2.9 points, so your running P&L is increased by 2.9 x 2 x $10 = $58. We therefore debit your ledger with $58, to negate this rise in P&L.
Please note: this information is intended as a generic example, and subject to change at any point. It may not apply in every scenario.
What if I have a stop?
If you have a non-guaranteed stop on your original position, it will remain unaffected. If you have a guaranteed stop on your position, then we’ll close the original position at its opening level and open a new position that reflects the terms of the offer. Any stops or limits attached will also be amended accordingly, so that your monetary risk remains the same.
How do dividends affect futures and forwards?
Dividend adjustments are already factored into the pricing of futures and forwards.
