How do dividends work in Sweden?

When you buy stock in a company, you’re effectively buying a piece of that company. Your piece makes you a part-owner, and you’re entitled to a share of the company’s earnings — which comes in the form of dividends.

In this guide, we go through the different types of dividends in Ireland, how they’re applied and how they could affect your taxable income.

What is a dividend?

A dividend is a portion of a company’s earnings returned to shareholders as a cash payment into a trading account. Dividends are typically distributed to shareholders quarterly, though some companies pay out dividends monthly or even twice a year.

Let’s pretend, for example, that a cleaning company is offering a dividend payment of €0.05 for each share held. If you owned 1,000 shares, you’d receive a dividend of €50. However, if you owned 10,000 shares, your dividend payment would be much larger at €500.

Not all companies pay dividends

Dividends are not guaranteed to shareholders. Companies decide what the value of a dividend will be, if they decide to payout a dividend at all. Also, just because a company pays a large dividend one quarter or year doesn’t mean it will do it again the next time.

Smaller or newer companies may choose to reinvest any profits into the company to help it grow, rather than pay shareholders a dividend. This tactic is also good for investors in Sweden, because if the company is growing, the value of its stock will likely grow too.

What is the dividend yield?

The dividend yield is a percentage that indicates the value of a dividend payment in relation to the cost of the stock. It’s calculated by determining what percentage of the stock price is returned to the investor as income.

The dividend yield helps investors compare similar companies, giving you an idea of which one offers a better return on your money in the form of a dividend.

Types of dividends in Sweden

Dividends come in different types, but not all companies pay all — or any of them to shareholders:

• Cash dividend. The most common dividend, it’s paid directly to your investment account as cash.
• Stock dividend. This dividend payment is paid in additional shares of stock, rather than cash.
• Property dividend. These are payouts of physical property, such as a product that has a fair market value.
• Scrip dividend. If short on cash, a company can issue a promissory note to pay the dividend at a future date along with interest.
• Hybrid dividend. This can be a combination of any other dividend, though it’s often a mix of cash and stock.

Paying tax on dividends

Because dividend payments are a form of income, you must report them as taxable income when you complete your tax return. In Ireland, the tax on dividends is called dividend withholding tax (DWT), which typically stands at 25%. There are some who may be exempt from this tax, such as non-residents of Ireland.

How much tax you pay on your dividend depends on several different factors, including your tax status and the type of interest or dividends you earn. If you want to understand the exact amount you’re liable for in taxes, do get in touch with a financial advisor to discuss your situation.

How does a dividend reinvestment plan work?

Some companies offer what’s called a dividend reinvestment plan — commonly called a DRIP. A DRIP allows you to opt-in to using your dividends to buy more shares of stock in the company instead of receiving the dividend payment as cash.

In this way, you’re able to use the money to buy more stock without paying brokerage fees. It’s also a passive way to increase your position in a company gradually over time with little effort. Once you opt-in, it all happens in the background automatically.

A downside of opting into a DRIP is that you don’t get to choose the price at which you’d like to buy more shares of stock. Instead, they’re automatically bought on your behalf on the date of the dividend payment.

How to compare dividend-paying stocks

When comparing dividend-paying companies, answer four key questions to better understand what to expect:

• How often are dividends paid? Some companies pay dividends quarterly, but it’s not uncommon for companies to pay dividends once or twice a year.
• Has the company declared dividends? Companies will often declare their dividend payments weeks or months in advance.
• Are dividends growing in value? Take a look back at the dividends paid by each company over previous years. If the value of the dividend has gradually increased, it’s a sign the company is growing and will potentially continue to increase its dividend.
• What’s the dividend yield? Depending on the yield, you might be able to outpace your passive earnings on a high-interest savings account.

Compare stock trading platforms

Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89 % of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Bottom line

Dividends can add value to a stock, providing the opportunity for an ongoing stream of income or reinvesting for faster compounding over time. But not all dividends in Sweden are alike.

If dividends are important to you, research a company’s history of dividends and the type of dividend it typically pays to see if it’s best for your portfolio and investment strategy. Then compare your trading platform options to find the best fit for your goals and experience.