02/25/2026

8 min read

What is a dividend?

A dividend is the part of a company’s profit that it pays out to its shareholders. If you hold shares in a public limited company, you can receive a dividend payment once a year or even several times a year, depending on the company. This distribution is usually made in cash, less often in additional shares, and shows how a company lets its investors share in its economic success. In this article, you’ll learn what a dividend is, why dividends matter to investors and how the distribution works.

Simple explanation: A dividend is the part of a company’s profit that is paid out to shareholders and represents a form of profit sharing.
Types: Dividends can be paid out in different forms, for example as a cash dividend, share dividend or special dividend, depending on the company’s dividend policy.
Process: Whether a dividend payment is made and in what amount is decided by the general meeting after the company’s annual profit has been determined.
Opportunities and risks: Dividends can contribute to total return, but they aren’t guaranteed and depend on the economic situation and the company’s distribution policy.

Definition: What does dividend mean?

A dividend is the share of a company’s profit that it distributes to its shareholders. Dividends describe a form of participation in success for owners of shares. Whether a dividend payment is made and in what amount is decided by the company’s general meeting, usually once per year. The payment is generally made as cash per share, but it can also be granted in the form of tangible assets or additional shares.

Key aspects of a dividend at a glance:

Profit distribution: Dividends are part of a public limited company’s balance sheet profit.
Shareholder return: They offer a direct return on the share investment that doesn’t depend directly on the share price.
Decision by the general meeting: The management board proposes the dividend and the shareholders vote on it – there’s no automatic entitlement.
Forms: The distribution is usually made in cash, less often as tangible assets or additional shares.
No obligation: Companies aren’t required to pay dividends.

What types of dividends are there?

Companies can distribute dividends in different forms. Which type of dividend payment is chosen depends on the company’s dividend policy and financial situation. The most important types of dividends are:

Cash dividend: Shareholders receive a fixed cash amount per share, which is the most common form of dividend for shares.
Share dividend: Instead of cash, additional shares are issued, increasing the number of shares held.
Dividend in kind: The distribution is made in the form of tangible assets, for example the company’s products or services.
Special dividend: This is a one-off dividend paid in addition to the regular distribution, for example when profits are exceptionally high.
Interim dividend: A dividend payment made during the financial year, before the final annual profit is determined.
Final dividend: This is a regular dividend approved after the end of the financial year based on the final profit.
Preference dividend: Holders of preference shares receive a preferential, often fixed dividend, usually without voting rights, but with priority over ordinary shareholders.

How do dividends work?

Dividends work as a regulated process through which companies distribute part of their profit to shareholders. The requirement is that a company operates profitably and deliberately decides to pay a dividend. The process shows what dividends in shares involve and why dividend payments aren’t guaranteed. Whether a distribution takes place always depends on profit, the financial situation and the company’s dividend policy.

The dividend process usually follows set steps:

Share purchase: Investors buy shares in a company and therefore become shareholders in the public limited company.
Profit determination: At the end of the financial year, the company determines the profit achieved.
Dividend proposal: The management board proposes whether a dividend will be paid and in what amount.
Resolution of the general meeting: Shareholders vote on the dividend payment, there’s no automatic entitlement.
Announcement: The company publishes the amount of the dividend and the payment date.
Payment: Shareholders receive the dividend payment per share held into their securities account.

Dividend yield made simple

Dividend yield shows how high a company’s dividend payment is in relation to the current share price. It’s given as a percentage and serves as a metric for comparing dividend shares with one another.

It’s based on a simple calculation:

Dividend yield = (dividend per share / share price) × 100

The dividend per share is divided by the current share price and then multiplied by 100. This produces the dividend yield, which sets a company’s ongoing distribution in relation to the capital invested.

Dividend yield offers an initial guide, but you shouldn’t view it in isolation. A company’s long-term dividend growth also plays an important role, as it can indicate whether dividends may rise or stagnate in future.

Dividend yield doesn’t take capital gains or capital losses into account as returns, but instead relates the dividend payment to the current share price. It doesn’t say whether a dividend payment will continue or be adjusted in future. A very high dividend yield can also occur if the share price has fallen sharply while the dividend initially remains unchanged.

Example of how to calculate dividend yield:

A company pays a dividend of five euros per share. The current share price is 100 euros.

Dividend yield = (dividend per share / share price) × 100

(5 / 100) × 100 = 5%

In this case, the dividend yield is 5%. With an investment of 100 EUR per share, investors receive a dividend payment of 5 EUR per year.

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Do I receive dividends from ETFs?

Yes, investors can also receive dividends with an ETF. What matters is how the specific ETF handles the dividend payments from the shares it holds. An ETF is an exchange-traded fund that invests in many different shares and usually tracks the performance of an index. If the companies included pay dividends, these dividend payments are pooled within the ETF.

In principle, there are two variants. Distributing ETFs pay out the collected dividends regularly to investors’ securities accounts. Accumulating ETFs automatically reinvest the dividends, which can increase the value of the ETF units. Which variant is used depends on the ETF’s structure and its defined distribution policy.

This is how dividends work with ETFs:

Dividends from shares: The companies included in the ETF pay dividends.
Pooling: The ETF collects dividend payments from many dividend-paying shares.
Distribution or reinvestment: Depending on the ETF, the dividends are paid out or reinvested.
Proportional receipt: Investors benefit in line with their share of the ETF.

Important: Whether and how often a dividend payment is made depends on the specific ETF, the underlying index and the distribution policy. Many dividend ETFs are based on well-known indices such as the MSCI World.

What is a dividend calendar?

A dividend calendar is an overview that lists important dates relating to companies’ dividend payments. Investors can see when a dividend is announced, approved and paid out. The dividend calendar helps to place dividend payments in time and makes them easier to plan. This applies to individual shares as well as dividend funds and dividend ETFs, provided these are distributing. However, the actual amount of the dividend can still change until the general meeting makes its final decision.

Typically, a dividend calendar contains several key pieces of information about dividends:

Company: Name of the public limited company paying a dividend
Dividend amount: Amount of the dividend per share
General meeting: Date on which the dividend payment is decided
Ex-dividend date: Cut-off date from which the share is traded without entitlement to the dividend
Payment date: Time at which the dividend payment is made

Advantages and risks of dividends

Dividends can bring both opportunities and risks for investors. Whether dividends make sense depends on your individual investment strategy, the company’s economic situation and the development of the share price.

Advantages of dividends:

Additional income: Dividend payments enable ongoing income and can represent a regular income from capital investments, regardless of whether the share price rises or falls.
Contribution to total return: Dividends can supplement the return on a share investment.
Predictability: Regular distributions make it easier to assess potential income.
Signalling effect: Companies with a long-term dividend policy and continuous dividend growth often show a reliable distribution practice.

Risks of dividends:

No guarantee: Dividend payments can be reduced or suspended entirely.
Tax burden: In many countries, dividends are taxed and reduce the net return.
Price risks: Dividends don’t protect against losses from falling share prices.
Arithmetically high dividend yield: A high dividend yield can arise because the share price has fallen sharply, which could indicate economic problems at the company.
Foregoing growth: High distributions can mean companies use less capital for investments.

Conclusion: The importance of dividends for you as a retail investor

Dividends are a form of profit sharing through which companies let their shareholders participate in economic success. For you as a retail investor, dividends can be an additional source of income and contribute to predictable income from investments.

At the same time, dividends are not a guaranteed return. Whether a dividend payment is made and in what amount depends on the company’s economic situation and its distribution policy. The development of the share price also remains an important factor.

The importance of dividends therefore lies above all in putting them into context. Alongside the current dividend amount, dividend growth over several years can also be a relevant criterion. Dividends can be a building block of your investment strategy, but you should always consider them in connection with risks, return opportunities and your personal goals.

Frequently asked questions about dividends

You now have a good overview of what dividends are. In our FAQ you’ll find additional information and answers to frequently asked questions on this topic.

No, dividends are not tax-free in Germany. They are treated as income from capital assets and are subject to withholding tax, which is taxed at a flat rate of 25%. In addition, a solidarity surcharge is levied on the tax and, where applicable, church tax. The withholding tax is automatically withheld by your bank or broker and paid to the tax office.
However, there is the saver’s allowance. This is a tax-free allowance in German income tax law under which capital income – including interest and dividends – remains tax-free up to 1,000 euros per year (for individual assessment) or 2,000 euros for joint assessment of married couples.
Dividends are received by all shareholders who hold shares of a company in their securities account on the ex-dividend date. Anyone who buys the share only from that day onwards will no longer receive a dividend for this distribution.
In Germany, dividends are paid out once per year by most public limited companies, usually after the general meeting. Internationally, however, half-yearly, quarterly or monthly dividend payments are also possible, depending on the company and its dividend policy.
The specific payment date is usually a few days after the general meeting. A dividend calendar provides an overview of dates and distribution rhythms, both for dividend-paying shares and for distributing ETFs.
A 5% dividend describes the dividend yield of a share at the current point in time. It shows how high the dividend payment is in relation to the share price, but it doesn’t say anything about the safety or duration of the distribution.
A dividend yield of 5% can have two different causes: either the company is paying a comparatively high dividend or the share price has fallen. That’s why you should always view a 5% dividend in the context of the company’s economic situation and its previous dividend policy. It’s also important that the dividend yield is stated before tax. After tax, the actual payout can be significantly lower.
Dividends are not an additional profit, but part of the profit the company has already earned that is distributed to shareholders. The dividend payment generally reduces the value of the company, which is often reflected in the share price.
For investors, dividends are still part of a share’s total return. This consists of the dividend and the development of the share price. Dividends are therefore not an “extra”, but another form of returning capital.
What matters is the context: Whether dividends make a positive contribution depends on how the company, dividend policy and share price develop in the long term.