Understanding dividends

Understanding dividends – a beginner’s guide

Dividends are one of the key perks to being a shareholder. Find out more with our quick guide.

When a company makes a profit, often they’ll choose to pay some or all of this out to their shareholders – the people who own the business.

This is a great way of keeping shareholders happy and attracting new investors to the company. A strong track record when it comes to dividends usually bodes well for the share price too.

If you own shares in a company, you’re entitled to receive any dividends the company pays out. This usually happens twice a year, though nothing’s guaranteed.

Dividends are one of the key perks of being a shareholder – they’re your share of the profits.

Dividends and colleague share plans

If you own NatWest shares through one of our colleague share plans, or as part of your bonus, and have chosen to keep them, you can choose to receive dividends as cash, or as extra shares.

You can make your choice to receive shares or cash via your EquatePlus account.

When you’re saving through our ShareSave plan, your monthly amount is held as cash, so you won’t get paid any dividends on this money. If you choose to buy shares at the end and keep hold of them, you’ll get dividends from this point onwards. Again you can choose between cash and extra shares.

Dividend yields

If you’re reading about stocks and shares, you might come across the term ‘dividend yield’.  

This is a measure of how much income has been paid to shareholders over a year. It’s expressed as a percentage and calculated by dividing the dividends paid per share over the past twelve months, by the current share price. So if a company has paid out 10p per share in dividends over the last year, and the share price is £2, the dividend yield is 5%.

Yield can be a useful guide, but it’s only a measure of what’s been paid in the past. Dividends can vary and aren’t guaranteed.

You can find out more about the dividends NatWest has paid to its shareholders on the investor relations section of our website.

How are dividends taxed?

If you receive a dividend, you may need to declare the income on your personal tax return and subsequently pay any tax due on your dividend. Each country has their own tax rules so if you’re not sure whether you need to pay tax, or how much, you should get in touch with your local tax authority or speak with an independent tax advisor.

Dividend reinvestment and compounding

If you opt to get paid your dividends as extra shares, you're automatically engaging in a powerful strategy – dividend reinvestment.

It's a double win – increasing the number of shares you own, while unlocking the magic of compounding. Here's how it works: compounding doesn't just grow your investment based on the original amount; it also boosts your returns, generating growth on the growth. It’s like a financial snowball effect, and it’s a smart choice if you’re looking to let your investment work smarter over time.

The dividend timeline

Let's look at a few key dates you’ll need to be aware of. The ‘ex-dividend date’ is the trading date on which a new buyer of the shares isn’t entitled to the upcoming dividend. The ‘record date’ is one day afterwards – this is when the company checks its shareholder register to find out who gets the dividend. It’s usually around six weeks before the dividend is paid.

So if you buy the shares before the ex-dividend date, you're eligible for the dividend. If you buy after this, the dividend goes to the previous owner.

Dividends are announced as part of annual and half year results - find out more here.

In summary…

In a nutshell, dividends are a fantastic perk that comes with being a NatWest shareholder. Whether it's a little extra cash in your pocket or more shares to add to your collection, dividends are like a small reward for your loyalty to NatWest - it's a way for the company to share its success directly with you.