Guides / Dividends on stocks: what they are, how they work and the key terms

Dividends on stocks: what they are, how they work and the key terms

A dividend is a payment a company may make to its shareholders from profits it has already earned. The board decides it, it is never guaranteed, and a handful of dates and terms tell you who gets paid and when.

By MarketFrame · Published 13 October 2026 · Updated 13 October 2026

Short answer: you receive a dividend if your name is on the company's register of shareholders on the record date. In practice that means owning the shares before the ex-dividend date. The amount is set per share, so 1,000 shares receive 1,000 times the per-share figure. The board can raise, cut or cancel it, and UK law only allows payments out of profits available for distribution.

What a dividend is, in plain English

Think of a company's profit as a pot of money. The board can put it back into the business, keep it as a buffer, or pay some of it to the people who own the shares. That last option is a dividend.

Dividends are paid per share. If you hold 1,000 shares and the company pays 5p a share, you receive £50. The London Stock Exchange asks companies to give dividend amounts gross unless they say otherwise, so the figure in an announcement is the amount per share before any tax.

Why some companies pay dividends and others do not

Some businesses pay out part of their profit year after year. Others keep almost all of it to fund new products, new markets or acquisitions. Both are ordinary choices.

A regular dividend tells you how the board has chosen to use profit so far. Having no dividend tells you the board has made a different choice. Neither tells you which way the share price will move, and that is where people most often go wrong.

Who decides, and why a dividend is never guaranteed

The board decides. For a final dividend, the board makes a recommendation and shareholders vote on it at the annual general meeting (AGM). The Lloyds Banking Group 2026 notice of AGM, for example, asked shareholders to approve a final dividend that the board had recommended.

The law sets a limit as well. Section 830 of the Companies Act 2006, in Part 23, says a company may only make a distribution out of profits available for the purpose. Broadly, that means its accumulated, realised profits less its accumulated, realised losses.

All of this is why no dividend is promised:

Profits can fall, leaving less to distribute.
The board can change its policy.
Regulators can step in. Lloyds says its board cancelled the final 2019 dividend after a request from the Prudential Regulation Authority, and paid no interim dividend in 2020.

Companies say this themselves. Aviva's dividend page states that its board "has not approved or made any decision to pay any dividend in respect of any future period". A company's past payments show what it did before, and they do not commit it to anything.

Interim, final and special dividends

Many UK companies pay twice a year:

Interim dividend: declared part-way through the financial year, usually with the half-year results.
Final dividend: recommended after the full-year results and voted on at the AGM.
Special dividend: a one-off payment outside the normal pattern. Lloyds' dividend history, for instance, lists special dividends for 2015 and 2016 alongside the usual finals.

The London Stock Exchange requires every dividend announcement to state which type it is. Our guide to Lloyds dividend dates and how payments work shows the twice-yearly pattern for one company.

The dates that matter: declaration, ex-dividend, record and payment

Declaration: the company announces the amount and the timetable.
Ex-dividend date: the first day the shares trade without the right to the upcoming dividend. If you buy on or after this date, the dividend goes to the seller.
Record date: the company takes the list of shareholders on its register who will be paid.
Payment date: the money is paid out.

The ex-dividend date comes first because share trades take time to settle. The London Stock Exchange's 2026 timetable says the record date should normally be a Friday, and with standard T+2 settlement the ex-dividend date falls one business day earlier. That changes soon. The UK moves to T+1 settlement from 11 October 2027, and from then the ex-dividend date and the record date will fall on the same business day. The Exchange's 2027 timetable says the first ex-dividend date on the new basis will be 22 October 2027.

The Exchange also asks companies to aim to pay straightforward cash dividends within 30 business days of the record date. Aviva's 2026 interim dividend shows how this works in practice: ex-dividend on 3 September 2026, record date 4 September, payment on 15 October. The Aviva shareholder dividends guide explains that company's timetable in more detail.

A dividend announcement on the London Stock Exchange must include:

The amount and currency.
The type (interim, final and so on).
The record date and payment date.
Whether a scrip dividend, dividend reinvestment plan or currency choice is offered, and the last date to choose it.

Dividend yield: what the number means and what it leaves out

Yield is a ratio: the annual dividend per share divided by the share price.

Here is an example with made-up numbers. A company pays 10p a share over a year and its share price is 200p. Ten divided by 200 is 0.05, or 5%. If the price falls to 100p, the same 10p dividend works out at 10%.

The dividend stayed the same and only the price moved. A high yield can simply reflect a falling share price, so read the figure as a description of past payments against today's price. It does not tell you the dividend will be paid again.

Yield also leaves out:

Whether the next dividend will be the same, smaller or cancelled.
Any change in the share price itself.
Whether the company's earnings can support the payment.

We do not quote live yields or prices, and we do not rank companies by yield. Those figures go out of date quickly, and a ranking encourages exactly the wrong reading.

Dividend cover and payout ratio in brief

Dividend cover asks how many times a company's earnings could pay the dividend. It is earnings per share divided by dividend per share.

Another made-up example: earnings of 20p a share and a dividend of 10p a share give a cover of 2. If earnings were 10p, cover would be 1, which leaves nothing to spare.

The payout ratio is the same idea turned round. It is dividend per share divided by earnings per share, so a cover of 2 is a payout ratio of 50%. Low cover means less cushion if profits fall. It does not show that a cut is coming, so read it alongside what the board says in its own results.

Cash dividends and reinvesting them

Most dividends are paid in cash. Some companies offer alternatives, such as a scrip dividend (new shares instead of cash) or a dividend reinvestment plan (DRIP), which uses the cash to buy more of the company's shares. Lloyds and Aviva both describe DRIPs on their investor pages, and Lloyds notes that taking part is optional.

Our guide to dividend reinvestment plans explains how they work. Reinvesting changes how many shares you hold. It does not change any of the risks described above.

How UK dividends are taxed: where to check the current rules

For the 2026 to 2027 tax year (6 April 2026 to 5 April 2027), gov.uk sets out these rules:

You pay no tax on dividend income that falls within your Personal Allowance.
You also get a dividend allowance of £500 a year.
Dividends above the allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band.
You do not pay tax on dividends from shares held in an ISA.

To work out your band, gov.uk says to add your dividend income to your other income, so you may pay more than one rate. If your dividends go over both your unused Personal Allowance and the dividend allowance, you need to tell HMRC. The rates and allowances can change each tax year, so check gov.uk before relying on them. Our Stocks and Shares ISA guide explains the ISA wrapper. For your own situation, use gov.uk or a qualified adviser.

How to follow dividend news without treating it as a forecast

Dividend announcements are company news, and it is best to read them in the company's own words. Look at the type of dividend, the dates, any scrip or reinvestment option, and what the board says about its policy.

The tone of the coverage is a separate thing. MarketFrame reads the UK business news on every FTSE 100 company each morning and gives the tone of that coverage a score from -10 (clearly bad news for the company) to +10 (clearly good). It is free to read, with an archive from 30 September 2026. News tone is not a share-price forecast, and a well-received dividend headline says nothing about where a share price goes next.

To see how coverage of a company has changed day by day, start at the daily FTSE 100 news hub or open a single company's history, such as Lloyds Banking Group.

Questions people ask

What is a dividend in the share market?

A dividend is a payment a company makes to its shareholders from profits it has built up. It is set as an amount per share, so the more shares you hold on the record date, the more you receive. Whether to pay one, and how much, is up to the company's board.

Are dividends guaranteed?

No. The board decides each dividend. A final dividend also needs shareholder approval at the AGM, and UK company law only allows payments out of profits available for distribution. Dividends can be cut or cancelled. Lloyds Banking Group, for example, cancelled its final 2019 dividend after a request from its regulator.

What does ex-dividend date mean?

It is the first day the shares trade without the right to the upcoming dividend. If you buy on or after that date, the payment goes to the seller. Under the current London Stock Exchange timetable the ex-dividend date is normally one business day before the record date. From 11 October 2027, when the UK moves to T+1 settlement, the two will fall on the same business day.

How are dividends taxed in the UK?

For the 2026 to 2027 tax year, gov.uk says any dividend income inside your Personal Allowance is tax free, and you then have a £500 dividend allowance. Dividends above that are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate). Dividends from shares held in an ISA are not taxed. Check gov.uk for your own position.

What is the difference between an interim and a final dividend?

The board declares an interim dividend part-way through the financial year, usually with the half-year results. It recommends a final dividend after the full-year results, and shareholders then vote on it at the annual general meeting.