Do all stocks pay dividends?

No. Many companies, particularly younger or rapidly growing ones, choose not to pay a dividend at all, reinvesting profits back into the business instead. Whether a specific stock pays a dividend, and how much, is entirely up to that company’s own board and financial situation.

Is dividend income guaranteed?

No. A company can reduce or eliminate its dividend at any time if its financial situation changes, and doing so is not uncommon during a period of financial difficulty. A dividend, however consistent its history, is not a contractual guarantee the way a bond’s interest payment generally is.

Do dividends count as taxable income, and does that change for a foreign company?

Yes, dividend income is generally taxable in the year received, whether the payment comes from a domestic or a foreign company. For a foreign company specifically, the exact tax treatment depends on country of residence, the company’s country, and any tax treaty between the two, and the rules can be genuinely complex. Consulting a tax professional familiar with cross-border investment income is the most reliable way to understand specific reporting and tax obligations.

Back to Glossary

Dividend: getting paid simply for holding a stock

Key takeaways
- A dividend is a portion of a company’s profit paid to shareholders, usually on a fixed, regular schedule.
- Not every company pays a dividend; the decision rests with each company’s board of directors.
- Dividend yield, the annual payment divided by share price, moves whenever the share price changes, even if the dividend itself stays the same.
- Dividends are generally taxable in the year received, and tax treatment can differ significantly for a foreign company.
- A dividend paid in a foreign currency needs to be converted before it can be spent or reinvested domestically, and the exchange rate at that moment affects the actual amount received.

A dividend is a portion of a company’s profit paid to shareholders. Here’s how dividend payments work, and what to consider with a cross-border investment.

What is a dividend?

According to Investor.gov⁠(opens in new window), a dividend is a portion of a company’s profit paid to shareholders. Public companies that pay dividends usually do so on a fixed, regular schedule, though they can issue an unscheduled payment, sometimes called a special or extra dividend, at any time.

How dividends work

Not every company pays a dividend, and the decision to pay one, and how much, rests with each company’s board of directors, based on its profitability and broader financial priorities. Companies that are still growing rapidly often reinvest all their profits back into the business rather than paying a dividend, while more established, mature companies with steadier cash flow are more likely to distribute a portion of profits to shareholders regularly.

Dividends are typically paid per share, meaning the more shares owned, the more total dividend income received, though the amount per share stays the same regardless of how many shares any individual investor holds. Most dividends are paid quarterly in the U.S., though some companies pay monthly, semi-annually, or annually instead. A dividend can be taken as cash or, through a dividend reinvestment plan often called a DRIP, automatically used to purchase additional shares of the same investment, which can meaningfully accelerate long-term growth through compounding.

Dividend yield and what it actually measures

A dividend’s size is often expressed as a yield, calculated by dividing the annual dividend payment by the current share price. This yield allows comparing dividend income across different investments regardless of their share price, similar to how an interest rate allows comparing different savings accounts. It’s worth understanding that a dividend yield isn’t fixed, since it moves whenever the share price changes, even if the actual dollar amount of the dividend itself stays the same. A rapidly rising dividend yield can sometimes signal that a stock’s price has fallen considerably, rather than that the dividend itself has become more generous, a distinction worth checking before assuming a high yield is automatically a positive sign.

Dividends and cross-border investing

For immigrants comparing investment options across a current country and a home country, understanding how dividends are taxed matters considerably, since the treatment can differ significantly between jurisdictions and can also depend on tax treaties between the two countries involved. Some countries tax dividend income at a different rate than ordinary income, and a tax treaty between two specific countries may reduce or eliminate certain double-taxation that would otherwise apply to dividends received from a foreign investment. Reviewing the difference between a dividend rate and an APY⁠(opens in new window) is a useful starting point for understanding how dividend income compares to other types of return being evaluated side by side.

Currency risk note

A dividend paid in a foreign currency needs to be converted into a home currency before it can be spent or reinvested domestically, and the exchange rate at the time of that conversion affects how much is actually received in home-currency terms. A company that maintains a perfectly stable dividend in its own local currency can still deliver a shrinking or growing dividend income stream from a home currency’s perspective, purely based on how that currency has moved relative to it. This is a factual consideration for anyone holding foreign dividend-paying investments, separate from any change in the company’s own dividend policy.

How to evaluate a dividend-paying investment

Look at the company’s history of maintaining or growing its dividend, rather than focusing only on the current yield, since a consistent track record often reflects greater underlying financial stability.
Check the payout ratio, the percentage of earnings paid out as dividends, since a very high payout ratio can sometimes signal the dividend is less sustainable if earnings decline.
Understand the tax treatment that applies to a specific situation, particularly for a foreign dividend-paying investment, since rules vary by country and by any applicable tax treaty.
Consider whether reinvesting the dividend fits specific goals, since a dividend reinvestment plan can meaningfully compound returns over a long holding period compared to taking the income as cash.

Dividend dates worth understanding

Several specific dates govern whether a given dividend payment is actually received, and understanding them prevents confusion about timing. The declaration date is when a company’s board announces the dividend and its amount. The ex-dividend date is the cutoff; purchasing a stock on or after this date means the upcoming dividend won’t be received, since the seller retains that right instead. The record date, usually shortly after the ex-dividend date, is when the company checks its records to determine exactly who qualifies as a shareholder entitled to the payment. The payment date is simply when the dividend is actually distributed to qualifying shareholders. Understanding this sequence matters when timing a purchase specifically to capture a dividend, since buying even one day after the ex-dividend date means missing that particular payment entirely, even while still owning the stock going forward.

Common questions about dividends

Do all stocks pay dividends?

No. Many companies, particularly younger or rapidly growing ones, choose not to pay a dividend at all, reinvesting profits back into the business instead. Whether a specific stock pays a dividend, and how much, is entirely up to that company’s own board and financial situation.
Is dividend income guaranteed?

No. A company can reduce or eliminate its dividend at any time if its financial situation changes, and doing so is not uncommon during a period of financial difficulty. A dividend, however consistent its history, is not a contractual guarantee the way a bond’s interest payment generally is.
Do dividends count as taxable income, and does that change for a foreign company?

Yes, dividend income is generally taxable in the year received, whether the payment comes from a domestic or a foreign company. For a foreign company specifically, the exact tax treatment depends on country of residence, the company’s country, and any tax treaty between the two, and the rules can be genuinely complex. Consulting a tax professional familiar with cross-border investment income is the most reliable way to understand specific reporting and tax obligations.

In Summary

A dividend offers a way to earn income simply by holding a company’s stock, and understanding how it’s calculated, taxed, and affected by currency movement helps in evaluating a dividend-paying investment accurately, especially one denominated in a foreign currency.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.