A dividend is a payment made by a company to its shareholders as a distribution of its profits or earnings. Dividends are a way for companies to share their financial success with shareholders and provide them with a return on their investment.
A distribution is a payment made by an ETF to its unitholders. A distribution is generally made up of dividends and other income (such as interest and capital gains) earned from its underlying investments.
Remember, not all investments pay regular dividends or distributions. They might decide to reinvest the money instead of paying it out. Sometimes they choose not to pay dividends or distributions at all.
You'll be eligible to receive a dividend or distribution if you hold a stock or ETF on its record date, which is the date that eligible shareholdings are calculated. The amount you receive will be proportional to your holding (including fractional holdings).
Our brokerage provider will convert the dividend or distribution payable to you from USD to AUD at the market FX rate at the time the dividend payable is calculated.
Example: Let's say you own 75.5 shares in XYZ Company, which announces a dividend of US$0.50 per share. You'll multiply the dividend per share by the number of shares you own (75.5 shares), equalling a total dividend of US$37.75. This is the amount you'll receive (less any applicable withholdings).
For more information on how our brokerage provider calculates dividends, please refer to the Alpaca Customer Agreement.
How will dividends be paid?
If a company or ETF you're invested in pays a dividend or distribution, we'll direct credit your linked bank account within 2-3 business days of the payment date.
Withholding tax
When our brokerage provider pays your dividend, it will be less withholding tax. This is generally 15% for Australian tax residents who've submitted a completed W-8BEN tax form. You can learn more about the form here.