What are dividends?
Dividends are one of the two ways shares make you money — the other being the share price rising. Here's how they work, in plain language, for South African investors.
Dividends, explained
A dividend is a slice of a company's profit paid out to its shareholders. When a company earns money, it can either reinvest those profits back into the business or return some to shareholders as a dividend. If you own shares in a dividend-paying company, you receive a cash payment for every share you hold — typically once or twice a year.
Not every company pays dividends. Fast-growing firms often reinvest everything to fuel growth, while mature, stable companies are more likely to pay steady dividends.
The key dividend dates
- Declaration date — the company announces the dividend.
- Last day to trade / ex-dividend date — you must own the share before the ex-dividend date to qualify for the payment.
- Record date — the company checks who its shareholders are.
- Payment date — the cash lands in your account.
The practical takeaway: buy before the ex-dividend date if you want that specific payout.
Dividend yield
Dividend yield tells you how much income a share pays relative to its price. It's the annual dividend per share divided by the share price. A R2 annual dividend on a R40 share is a 5% yield. Yield lets you compare income across shares — but a very high yield can sometimes be a warning sign that the market expects the dividend to be cut.
Dividends and tax
In South Africa, dividends attract a dividends withholding tax — currently 20% — usually deducted before the money reaches you. A valuable exception: dividends earned inside a tax-free savings account are exempt, which is one reason the TFSA is so powerful for long-term investors.
The power of reinvesting
Instead of spending your dividends, you can reinvest them to buy more shares — which then pay their own dividends. Over years, this compounding effect can significantly boost your total return. Learn more in compound interest explained.