Dividend — what is it? How to earn on dividends
A dividend is a portion of company profit paid to shareholders. Learn how dividends work, when they're paid, and how to build a dividend portfolio.
Definition
Dividend is a portion of net profit of a joint-stock company that the general shareholders' meeting decides to pay to shareholders. It's a form of direct compensation for owning shares in a company.
How do dividends work?
- Company achieves net profit for the fiscal year
- Management proposes profit distribution (how much for dividend, how much to retain)
- General shareholders' meeting approves the proposal
- Record date is established — whoever owns shares on this date receives payment
- On payment date money arrives to brokerage account
Key concepts
Dividend yield
Annual dividend per share divided by share price × 100%. Allows comparing "profitability" of different companies.
Example: Share costs 100 PLN, dividend is 5 PLN → dividend yield = 5%.
Payout ratio
Percentage of profit allocated to dividend. Too high (>80%) may signal that company isn't investing enough in development.
Ex-dividend date
First day when share buyer no longer has right to current dividend. Share price usually drops by dividend value.
Dividends and taxes
From dividend, Belka tax of 19% is collected. Brokerage firm deducts it automatically. By investing through IKE, you can avoid this tax.
With foreign dividends the situation is more complex — often withholding tax is collected at source in company's country.
Dividends and FIRE
Dividend portfolio is one strategy for generating passive income during FIRE stage. Regular dividend payments can cover part or all living expenses without need to sell shares.
How Freenance can help
Freenance tracks dividends received from your investments and includes them in passive income calculations. You see how much you earn on dividends and how close you're getting to financial independence.
Want full control over your finances?
Try Freenance for free