Dividend
What a dividend is, the types, how to calculate one, and how dividends are taxed in NZ.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- A dividend is a portion of a company's profits paid out to its shareholders.
- Companies aren't obliged to pay dividends, and the board decides whether to distribute profits or hold onto them.
- Dividends are taxable income in New Zealand, and imputation credits pass on the company tax already paid so the same profits aren't taxed twice.
- You work out a dividend per share by dividing the amount to be distributed by the number of shares on issue.
What is a dividend?
A dividend is a portion of a company's profits paid to its shareholders. It's a way to share the rewards of a profitable business with the people who own it.
The word dividend comes from "divide", because you're dividing profits among shareholders. Dividends are paid out of a company's profit, so a company needs to be earning money before it can pay them.
A company isn't obliged to pay dividends. The board of directors decides whether to pay one, when to pay it, and how much each share receives.
Types of dividends
Dividends can take a few different forms, depending on what the company decides to distribute. Here are the most common types you'll come across:
- Cash dividends: a straight cash payment to shareholders, and the most common type
- Share (scrip) dividends: extra shares issued to shareholders instead of cash
- Special dividends: a one-off payment made outside the usual schedule, often after a strong year
- Property dividends: assets other than cash or shares paid out to shareholders
Why do some companies issue dividends?
Established companies with steady profits often pay dividends to reward shareholders and signal that the business is healthy. Younger or fast-growing companies tend to reinvest their profits instead, putting the money back into the business to fuel growth.
Paying a dividend is a choice about how to use money the company has earned, so it comes with trade-offs.
Implications of issuing dividends
Dividends are paid from profits the company holds as retained earnings. Paying them out has a few knock-on effects worth weighing up:
- Funds are no longer available for operating expenses or capital investments
- Recipients pay income tax on the dividends they receive
- Extra reporting responsibilities apply, such as declaring the dividends paid
The dividend payment process
Dividends are usually paid on a schedule, often quarterly or annually. A company might pay an interim dividend partway through the year, then a final dividend after its annual general meeting (AGM) once the full-year results are confirmed.
The board steers the whole process. It sets a declaration date when the dividend is announced, a record date that fixes who's on the share register and eligible to be paid, and a payment date when the money reaches shareholders.
How dividends are calculated
Working out what you'll receive is straightforward once you know the rate per share. The basic formula is:
Dividend received = dividend per share x number of shares
To calculate your annual dividends, you add together all the dividends you received across the year.
Calculating the dividend per share
The dividend per share is set by the company, not the shareholder. To land on a figure, a company weighs up its annual profits, the equity of the business, and its budgeted expenditure, then divides the agreed amount by the number of shares on issue.
Dividend calculation example
A quick example shows how the numbers come together. Say Waldo Manufacturing makes a net after-tax profit of $10m and decides to keep $5m for capital investments.
That leaves $5m to distribute across 100,000 shares, which works out to $50 per share.
So if you held 10 shares, you'd receive 10 x $50, or $500 in dividends.
How dividends are taxed in New Zealand
Dividends are taxable income for New Zealand shareholders, so they're something to account for at tax time. This is general information rather than tax advice, so check your own situation with a qualified adviser.
When a company pays a dividend, it deducts resident withholding tax (RWT) at 33%. To avoid taxing the same profits twice, companies attach imputation credits, which represent company tax that has already been paid on those profits at the 28% company tax rate.
Where full imputation credits are attached, the company tops up the difference of about 5% so the total reaches the 33% RWT rate. You then account for the dividend at your own marginal tax rate, using the imputation credits to offset the tax already paid. You can read more from Inland Revenue.
Dividends vs capital gains
Shareholders make money from their investments in two main ways, and different investors value each differently. Some prefer dividends because they provide a steady stream of income while they hold the shares.
Others favour capital gains, where profits are reinvested to grow the value of the company. Those gains are realised when they sell their shares for more than they paid.
Track your company profits with Xero
Deciding whether to pay a dividend starts with a clear view of your profits and what you're holding in retained earnings. Xero online accounting software brings your numbers together so you can see where your profits are going and keep on top of your reporting.
See what your business is really earning and try Xero to get one month free.
FAQs on dividends
Here are answers to some frequently asked questions about dividends.
Are dividends taxable in New Zealand?
Yes, dividends count as taxable income for New Zealand shareholders. The company deducts resident withholding tax before you're paid, and you then account for the dividend at your own marginal tax rate.
What are imputation credits?
Imputation credits represent company tax that's already been paid on the profits behind a dividend. They let you offset that tax so the same profits aren't taxed twice.
How often are dividends paid?
It varies by company, but many pay on a regular schedule such as quarterly or annually. Some also pay a one-off special dividend after a particularly strong year.
Do all companies pay dividends?
No, paying a dividend is always the board's choice. Many growth-focused companies reinvest their profits instead of paying them out.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.