Reading a dividend announcement

What does a typical dividend announcement say?

Most announcements fit in a few sentences. Here’s a hypothetical one, written the way they usually read. The rest of this page takes it apart.

What does each line mean?

The ex-dividend date isn’t in the release, which is common, because the exchange sets it. Under T+1 settlement it’s generally the same business day as the record date. The ex-dividend date calculator works it out for any record date.

How do you turn the amount into a yield?

Multiply the regular payment by the number of payments a year, then divide by the share price. At a hypothetical price of $36, the sample gives $1.80 ÷ $36 = 5.0%. Before the increase it was $1.72 ÷ $36 = 4.8%.

Only annualize regular payments. If a release mentions a special, extra or one-time amount, leave it out of the yield; see special dividends. If the frequency is changing, for example from quarterly to monthly, annualize on the new schedule and check whether the yearly total actually changed.

Why does “per share” vs “per unit” matter?

Corporations pay dividends per share. Trusts, REITs and many funds pay distributions per unit. The wording is a clue that the payment may not be a dividend in the tax sense: unit distributions can be made up of several components, which the issuer reports after year-end. See REIT and income trust distributions.

Also check the share class. Companies with preferred shares often announce those dividends in the same release, and the amounts are unrelated to the common dividend. See preferred shares basics.

What does the eligible-dividend designation mean?

Canadian corporations state whether a dividend is designated eligible, which decides how it’s taxed for Canadian residents in a non-registered account. Eligible dividends are grossed up by 38% and earn a federal dividend tax credit of 15.0198% of the grossed-up amount; non-eligible dividends are grossed up by 15% with a federal credit of 9.0301%. Provinces and territories add their own credits.

What currency is the dividend paid in?

Some Canadian companies declare dividends in US dollars, and some issuers let holders choose a currency. If the declared currency differs from your account’s currency, your broker converts it, usually at its own rate around the payment date.

For example, a hypothetical US$0.50 dividend converted at a hypothetical rate of 1.35 Canadian dollars per US dollar is C$0.675 per share, before any conversion fee. For Canadian residents, dividends from US companies also face US withholding; see the Canada–US tax treaty on dividends.

Which other wording is worth noticing?

• Increase vs unchanged: some releases state the change from the last payment; others don’t, so the comparison may be yours to make.
• Frequency changes: a move from quarterly to monthly, or the reverse, with no change in the annual total isn’t an increase.
• Suspended or under review: signals the board is reconsidering the payment; see dividend cuts.
• DRIP terms: some releases mention a reinvestment discount. A hypothetical 2% discount on a $36 share means reinvesting at $35.28.
• Policy statements: phrases such as a target payout range describe intentions, not commitments.

A quick checklist for any announcement

1. Confirm the class of share or unit and the amount.
2. Compare with the previous payment: increase, unchanged or cut.
3. Note the frequency and annualize regular payments only.
4. Write down the record date, then work out the ex-date and the last day to buy.
5. Check the currency and the tax designation.
6. Look for words like special, extra, suspended or under review.