When you buy a Stock or an Index, you have the right to receive or obligation to pay dividends.
Dividends are processed through a value adjustment of your account (basically, they are added to or subtracted from your account).
What this adjustment looks like is dependent on the size and direction of your trade:
- when you hold a LONG position (arrow 'UP'), the dividend you are entitled to will be added to your account;
- when you hold a SHORT position (arrow 'DOWN'), the dividend will show as a negative correction (it will be subtracted from your Cash).
The amount of dividend that you will receive or pay is dependent on the size of your trade: the larger the trade, the bigger the Cash adjustment.
When am I entitled to receive dividends?
You will only receive or pay dividends if you hold an open position at market close the day before the ex-dividend date.
You can find this ex-dividend date on the corporate website of a company - for example, if you read that Hewlett Packard Enterprise Company's ex-dividend date is on December 12th - to receive a dividend you must open a LONG position in HP before 20:59 (GMT) of the day before. Note: if you open a SHORT position before this time, the Cash correction will be negative (in other words: in this case you will be charged a dividend).
How much will I get?
The dividend you are entitled to depend on the size of your trade and not on how many shares you hold (you don't hold the actual share, but a CFD contract that follows the price of the underlying share). As the size of your CFD trade isn't usually 1:1 with the share price (as in the example below), some calculation needs to be made:
- So let's assume that Barclays price is £245.58 per share and that you invested £100 in a LONG position - then the value of your trade would not be 1:1 with the share value, but 40.72%, because:
100 / 245.58 (x 100) = 40.72%
- To calculate how much dividend you are entitled to, the calculation is as follows:
(Barclay's dividend per share) £ 3.5 × (your Barclays trade size) 0.4072 = 1.4
- In the example above, you would be entitled to a €1.4 dividend.
Naturally, the same calculations apply for SHORT trades (arrow DOWN), that is to calculate how much dividend you will be charged.
How are dividends processed in your account?
Just after the market close, the dividends are automatically processed with the Cash balance in your portfolio. You will see how much dividend you received or paid in the detail screen of an open or closed position (History > Trades).
Tax on dividends: The underlying product is a CFD, so the dividend is not ''real'', but in fact an adjustment to your account that replicates how a dividend behaves. This is also the same for 'dividend withholding tax' which we adjust for you (no actual tax is deducted or paid to the authorities). You can find more information here about Corporate actions.