Passive income that lands in your account regardless of your input? That’s exactly what dividend stocks promise – one of the most popular tools for making long-term money without having to monitor the market every day. A dividend is a reward for patience and trust in a particular company. But how exactly does it work? Who decides it, when is it paid and why do some companies send it regularly while others don’t send it at all?
A dividend is a monetary reward paid by a public limited company to its shareholders. The decision as to whether and how much dividend will be paid is made by the company’s general meeting. The payment is then made to those who owned shares on the so-called record date. Most often, the dividend is set as a fixed amount per share – for example, CZK 10 for each share you own.
Logically, it would seem that the amount of the dividend would depend on how much the company earned – i.e. its net profit after tax. And this is often the case. But it’s not the rule. Even a company that is not currently showing a profit can pay a dividend (for example, from reserves from previous years). Conversely, even a profitable company may decide not to pay a dividend, perhaps because it wants to invest all the money back into its development.
The general meeting is the highest body of a joint stock company, where shareholders meet and decide together on important issues concerning the company’s operation. Typical matters voted on at a general meeting include the approval of financial statements, the election of members of the board of directors or the supervisory board, and the decision whether and how much dividend the company will pay. Each shareholder has voting rights at the general meeting, which usually correspond to the number of shares they own.
The way a company pays a dividend doesn’t always have to be the same – it depends on its financial situation, strategy and the message it wants to send to investors. In terms of the form of payment, there are several basic types of dividends, which differ in the form in which the shareholder receives the yield.
The most common is undoubtedly the cash dividend. In this case, shareholders receive cash, most often by transferring it to an account they have with their securities dealer. It is a simple, straightforward and tax-understandable method of payment.
For example, if you own 100 shares and the company declares a dividend of CZK 15 per share, this means you will receive CZK 1,500 (gross, i.e. before tax). This is the form used by most Czech and foreign companies because it is the most popular among investors – they can keep the money, reinvest it or use it according to their needs.
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The second most common option is a stock dividend, where the shareholder receives additional shares in the company instead of cash. In this way, the company is actually rewarding investors “in their own currency” – increasing their stake without having to dip into their cash. This strategy tends to be especially popular with fast-growing companies that want to preserve financial reserves while motivating shareholders to hold shares for the long term.
A typical example is when a company announces that it will issue one new share for every 10 shares held. So if you own 100 shares, you will receive 10 more. At first glance, this may seem advantageous, but it is important to remember that this will increase the total number of shares on the market – often diluting the value of an individual share. Nevertheless, a stock dividend is particularly interesting for investors who believe in the long-term growth of the company.
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The whole process of dividend payment takes place in several stages:
Dividend payments begin on the declaration date. This is the date on which the company’s board of directors officially announces that it will pay a dividend. On this date, the company publishes key information – how much the dividend will be, who will be entitled to it, the record date, and when the dividend will be paid, the payment date. This announcement is usually made via a press release, the stock exchange or on the company’s website and is an important signal to investors and the public.
The record date is the date on which a company determines who is entitled to a dividend. In other words, on this date, the company “scans” the list of all shareholders and those who own shares on that date will be entitled to the dividend. Those who bought shares later will no longer be on the list and will not receive the dividend even if they actually hold the shares.
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The record date is directly related to the ex-dividend date, or the date on which the shares begin trading without entitlement to the dividend just declared. If someone buys a share on or after that date, they will no longer receive any payout because, in the eyes of the system, the entitlement to the dividend is linked to the ownership status of the previous day.
This is a consequence of the stock exchange settlement system, where the so-called T+2 rule most often applies. This means that if you buy a share today, you will not be officially registered as its owner until two business days later. If you would like to be entitled to a dividend, you must buy the share no later than two business days before the record date.
Finally, there is the payment date. On this day, the company will actually start sending out dividends to shareholders’ accounts. The payout can take place in different ways – directly through a securities dealer, a bank, or through a central depository, depending on how your shares are managed.
Imagine that Alfa, Inc. announces on 1 June 2025 that it will pay a dividend of CZK 20 per share. The company also sets the following key dates:
In order to receive the dividend, shareholders must be registered as shareholders of record on the record date, 18 July. As the shares are traded on the stock exchange under the standard T+2 regime (i.e. two business days after purchase), the investor must purchase the Alfa shares no later than Monday 16 July 2025.
Theex-dividend date, i.e. the day on which the shares are no longer traded without entitlement to this dividend, will fall on 17 July 2025. If someone buys the shares on or after this date, they will no longer be entitled to the dividend, as the trade will not be settled until after the record date.
An investor who holds shares on 18 July 2025 will receive a dividend of CZK 20 per share. Alfa will send this amount to the investor’s account on 15 August 2025.
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The dividend has both a direct and indirect effect on the share price – and this effect occurs in two main phases – before and after the payout:
In the long run, dividend payments also affect the overall perception of the company. Companies that pay dividends regularly tend to be perceived as stable and financially sound, which can have a positive effect on their share price. Conversely, an unexpected reduction or cancellation of a dividend often causes nervousness and can lead to a decline in the share price.
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A dividend is a share of profits that a company pays to its shareholders as a reward for their investment. The payout is decided by the general meeting and is payable to those who hold shares on the ‘record date’. Most often the dividend is paid in cash, less often in the form of new shares.
The payout process involves several key dates: the declaration date, the record date, the date on which the shares start trading ex-dividend and the payment date. The share price usually rises before the payout date and falls after the ex-dividend date.
Firms that pay dividends regularly are often considered stable. In the Czech Republic, these include ČEZ, Komerční banka, Moneta and Philip Morris ČR, while foreign companies include Coca-Cola, Johnson & Johnson, Procter & Gamble and Microsoft.
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