Gross dividend

At the ending of the financial year companies will announce the profits or losses that they have earned and a figure for net profit after tax. A company is able to choose either to pay any profit out in dividends or to re-invest it in the business. Dividends are paid out per share and consequently the more shares that you own in a business the more dividend income that you will receive. Using the instance of Buntam plc the figures indicate a gross dividend yield of 5%. This signifies that the dividend paid equals 5% of the share price or eight cents in this case. The term gross income that this is the dividend paid before tax. The equivalent computation for Zellus plc means that the dividend yield of 3.33% is equivalent to a gross dividend payment of nine cents. If the individual shareholder in Buntam plc pays tax at 20% on investment income then he will collect a net dividend of 6.40 cents per share. The company pays this essential rate of tax to the government as an advance payment of its corporation tax liability when it pays out its dividends and so investors receive the dividend after deduction of the basic tax payable.

The gross dividend figure is of significance to an investor as it facilitates direct comparison of the dividend figure and dividend yield paid out by different companies as well as comparison with interest yields on fixed return investments.

The tax liability is determined through the individual circumstances of each investor and so its inclusion would serve only to confuse any comparative analysis. The dividend figure is as well relevant to an investment decision because it is a way of earning income from investments as opposed to capital gains which can only be realised when the investment is sold.