A share of profit, paid in cash:the dividend, a holder's stash.
A distribution of a company’s profits to its shareholders.
Holders of share CFDs do not own the shares, so a dividend is reflected instead as a cash adjustment: credited to long positions and debited from short positions on the ex-dividend date.
In plain words
A dividend is a payment a company makes to its shareholders out of its profits, usually a set amount per share. On the ex-dividend date the share begins trading without the right to the payment, and its price typically opens lower by about the amount of the dividend. A CFD holder does not own the share, so the dividend is passed on as a cash adjustment: added to long positions and taken from short ones.
See it move
Dividend is about half of Company profit (as in the lesson)
Why it matters
Without the adjustment, the drop in the share price on the ex-dividend date would hand a loss to long positions and a gain to short ones for no market reason. The adjustment offsets that drop, so a dividend is not a windfall for the holder of a CFD.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader is long 100 CFDs on an invented share priced at 50, which pays a dividend of 1 per share, before any deduction a broker applies.
- 1On the ex-dividend date the price opens about 1 lower, at 49
- 2Change in the position = 100 × −1 = −100
- 3Dividend adjustment credited = 100 × 1 = +100
- 4Net effect = −100 + 100 = 0
The adjustment and the price drop cancel out; a short position would see the reverse, a gain of 100 on price and a debit of 100.
A common mistake
A dividend adjustment is sometimes seen as extra income from holding a long CFD. The share price typically falls by about the same amount on the ex-dividend date, so the two roughly offset.
Check yourself
Educational information, not investment advice or a recommendation to trade.