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CFDs and Dividends
  • The following is for dividend payments if you're long (bought) a share position via a CFD
  • For details on how dividends are handled for short positions, see further down the page

If you've read the who owns the shares in a CFD transaction FAQ question you should understand that when trading CFDs you don't physically own the shares. Rather you're buying a contract, the CFD, that will give you 100% of the profits and the losses of the share prices movement.

But this doesn't mean you won't be entitled to any dividends.

The broker will pass these on either in full or as the majority do, 90% of the value. Any dividend payment will be a straight cash credit to your account.

When and how do you qualify for a dividend payment

If you hold a long CFD position (long means you've bought the shares) on the date the share goes ex-dividend you'll be entitled to receive the dividend income, usually around 90%. So if the company pays a 10p per share dividend you'll get 9p.

Note, that a dividend payment is usually made several weeks after the ex-dividend date. For example, XYZ Industries might go ex-dividend on 1st June but pays the money on the 10th July.

This means that if you held the shares on the 1st June but sold them on the 2nd June you'll still be entitled to the dividend income. But if you bought the shares on the 2nd June or later, no dividend would be paid.

Where to find details on Ex-Dividend dates

Use the following website, it's not perfect but it's the best I've found. Please contact me (at the bottom of the page) if you know of any other services and I'll list them here.

Short CFDs and dividends

But what if you short sell a share using CFDs, how is the dividend payment handled?

Shares held short via CFDs will be debited the dividend amount, ie money will come out of your account. Traders new to CFDs often think this is an automatic negative, as paying out money is never good news. However, if you look at the workings it doesn't matter. For example -

  • When a share goes ex-dividend its price will normally fall by the same amount of the dividend payment
  • So if a share is priced at £5.00 and goes ex-dividend today (dividend is £0.10) the price should immediately drop to £4.90
  • The short seller will therefore have to pay the £0.10 dividend but this will be offset by the share price dropping around £0.10
  • So pay out 10p for the dividend but receive a 10p profit from the share price drop, one cancels the other for a net result
One final point - if you're short a share and it pays out a dividend your broker will make a simple cash deduction from your account.

CFD Dividend summary

Whether you receive dividends or have to pay them out due to being short should be of little concern to the CFD trader. Remember, dividend income is more about investing than speculative trading and CFDs are not designed for investment purposes.

Therefore the potential profits and losses when using CFDs can be so large they'll dwarf any dividend payment.

My advice is to understand how dividends are handled with CFDs but concentrate your efforts on where the stockmarket or individual shares are going to as that's the crux of this game.

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