Dividend Adjustment Payments in CFD Trading
If you have an open position in CFDs on Shares, Indices, or ETFs at the start of the business day (00:00 h EET), which coincides with the so-called “Ex-date”, then a dividend adjustment amount is added to your account for a long position, or withheld for a short position.
The ex-date is the first day following the date at which, if you own shares of a given company (respectively, if you have a short position), you are entitled to receive (respectively, pay) a dividend. These dates are announced by the issuer companies and are usually included in the decisions of the General Meeting of Shareholders.
With the arrival of the ex-date, shares will start trading without the right to a dividend. This circumstance is reflected in their share prices.
Note: Each country has a different practice when paying dividends. In most European countries, for example, dividends are paid once a year, while in the US this is done on a quarterly basis.
This information should be kept in mind when trading CFDs on Shares, Indices, and/or ETFs, since the arrival of the ex-date for the company you have an open position in (respectively, an index which includes it) may significantly change the value of your position, as well as lower (respectively, increase) the balance in your account with the amount of the dividend adjustment payment you have paid (received).
1) Dividend adjustment payments on positions in Share and ETF CFDs:
a) On long positions: The net amount of the dividend adjustment payment will be added to your account. This is the dividend adjustment payment announced by the company, deducted with the respective tax. Please note that this tax is different for each country*.
Example: The dividend ex-date for 3M company shares (MMM) is on 17.05.2018. The 3M company (MMM) has announced a gross dividend of 1.360 USD per share. If the tax on dividend adjustment payments in the US for your country is 10%, then for each 3M share you have owned at the start of the ex-date you will receive a dividend adjustment payment equal to 1.224 USD = 1.360 USD – 0.136 USD (10%).
b) On short positions: The gross amount of the dividend adjustment payment will be withheld from your account.
Example: The company has announced a gross dividend of 1.360 USD a share. So for each 3M share you have been “short” on at the start of the ex-date of 3M, you will have to make a dividend adjustment payment of 1.360 USD. This amount will be automatically deducted from your account.
2) Dividend adjustment payments on positions in Index CFDs:
The amount of the dividend adjustment payment that you will receive (or pay) is calculated proportionally to the weight of the company included in the index.
Note: The weight of individual companies (components) within each index is calculated using a different method. Therefore, distribution of dividend-adjustment payments is calculated differently for each index.
Example: The ex-date for 3M company shares (MMM) is 17.05.2018. The company has announced a gross dividend of 1.360 USD per share. 3M is a component of the US30 index and on the ex-date its weight in the index was 5.50%. The closing price on 17.05.2018 for a 3M share was 200.00 USD, and that of the US30 was 25,000.00 USD.
The dividend adjustment payments for Index CFDs are calculated using the following formula:
|Dividend adjustment payment for 1 CFD on US30 = 1.360 USD ×||25,000 USD × 5.50%||= 9.35 USD|
So, if at the start of the ex-date you were holding an open long position, then you would receive 9.35 USD for each CFD on US30. Respectively, if you were holding an open short position, then 9.35 USD would be withheld from you for each CFD on US30.
Deltastock reserves the right to change the amount and the way of payment and deduction of dividend adjustment payments, in case of amendments in the applicable legislation governing dividend distribution by issuers, including with a view of taking into account the applicable taxes levied on dividends in the issuer’s or another jurisdiction.
Note: Views expressed here are for education purposes only and are not the views of Deltastock or its employees. These views are not personal recommendations or investment advice. Any quotes of financial instruments displayed on this page are for reference purposes only and do not reflect the current market situation. You may wish to seek independent advice before entering into transactions.