Dividend — what is it? How to earn on dividends

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.

Quick Answer

A dividend is a portion of a joint-stock company's net profit paid to shareholders, approved by the general shareholders' meeting as direct compensation for owning shares. Whoever owns the shares on the record date receives the cash on the payment date, and the price typically drops on the ex-dividend date. The dividend yield is annual dividend per share divided by price, while the payout ratio shows the profit share distributed. In Poland a 19% Belka tax is withheld automatically, though an IKE account can shelter it. Regular dividends can fund passive income in a FIRE strategy without selling shares.

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How do dividends work?

1. Company achieves net profit for the fiscal year
2. Management proposes profit distribution (how much for dividend, how much to retain)
3. General shareholders' meeting approves the proposal
4. Record date is established — whoever owns shares on this date receives payment
5. 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.

👉 Track your dividends — freenance.io

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FAQ

What is the difference between gross and net dividend in Poland?

The gross dividend is the amount announced by the company, before the deduction of the 19% Belka tax. The net dividend is what the investor actually receives in their brokerage account — gross minus 19%. Example: gross dividend 100 PLN, Belka tax 19 PLN, net dividend 81 PLN. The broker deducts the tax automatically.

What is the ex-dividend date and why does it matter?

The ex-dividend date is the first trading day on which the share buyer no longer has the right to the announced dividend. To receive the dividend, you must own the share at the end of the day before the ex-dividend date. The share price typically drops by an amount close to the dividend on the ex-dividend date — there is therefore no "free profit" from buying just before the cut-off.

Do all stock companies pay dividends?

No. Many growth companies (especially in the technology sector) prefer to reinvest profits in development instead of paying dividends. The decision on dividend payment is made by the general shareholders' meeting at the recommendation of the management board. Some companies have a long history of regular increases (so-called Dividend Aristocrats), others have never paid out a dividend.

How can I avoid the 19% Belka tax on dividends?

The legal way available in Poland is to invest through IKE or IKZE accounts, where dividends are tax-exempt (or settled differently). With dividends from foreign companies, double taxation treaties may apply — the source country deducts withholding tax, and the investor settles the difference in their PIT return. Each case requires individual analysis.

Is a dividend portfolio safer than a growth portfolio?

Not necessarily. Dividend companies tend to be more mature and less volatile, but they are not free of risk — they can cut or suspend dividends in a crisis (e.g., during COVID 2020 many companies suspended payments). Dividend yield can also be misleading — a very high yield often signals problems and the risk of share price decline.