Dividends are like a nice little treat that you are entitled to you from your slice of the company pie. In traditional share trading you buy shares in a company that pays a dividend, you then receive a nice dividend cheque, usually twice a year.
Today I would like to show you how dividends are treated when spread betting using a real life example that happened recently in my own trading account.
In the previous stock market update I mentioned that my spread betting provider made an adjustment on my trading account to reflect the fact that I had an open position (a spread bet) on a UK listed company on an ex dividend date.
Note: Ex dividend date refers to the date that a share is trading without the dividend. How this works in practice is that when a company pays a dividend to its shareholders, the value of the share price should fall by the same amount as the dividend.
Dividends are cash payments you receive as a shareholder in any company that:
- Actually pays a dividend (not all companies do)
- You own shares in the company in question
Under the terms and conditions of my current spread betting provider, I need to be holding a position on the day prior to the ex date. They will also post dividend payments or withdrawals onto my account just before the market opens on the ex dividend date.
This is in contrast to traditional share trading since the time delay between the ex dividend date and receiving the cheque as a shareholder can be anywhere between two and three months.
Another important difference between traditional share trading and spread betting is that:
- If you have a long position/bought a spread bet then the dividend will be credited to your account
- If you have a short position/sold a spread bet the the dividend will be debited from your account
The adjustment that my spread betting company made on my account was a debit i.e. they charged me the dividend because I held a short position in a UK company on the ex dividend date.
Watch out for the small print!
Most spread betting companies will credit you 80-90% of the dividend amount on long positions whilst debiting 100% of the dividend amount on short positions. This is because the UK government do not want stock market participants to benefit from receiving dividends free of tax by using a spread betting account and so we are all taxed, spread bettors included.
The bottom line for me as an active trader of UK shares is that I really do not care for dividends. Its nice when you receive them (because as a spread bettor I receive them on the same day as the ex dividend date) but my style of trading seeks to profit from capital gains, jargon for making money from the share price rise, rather than dividends.
I hope this helps and please leave a comment to ask a question or contact me about dividends and spread betting UK shares 🙂
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Any trades listed above are closed trades as I do not make public open positions.
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