Dividend

Published Monday 17 August 2026

Table of contents

• What is a dividend
• Types of dividends
• Why companies pay dividends
• How dividends are taxed in the Philippines
• Key dividend dates
• The dividend payment process
• Dividend reinvestment plans
• Dividend yield
• How dividends are calculated
• Dividend calculation example
• Dividends vs capital gains
• Simplify your dividend record keeping with Xero
• FAQs on dividends
• Related terms
• Learn more about dividends

Key takeaways

• A dividend is a portion of a company's profits distributed to shareholders, typically as cash or additional shares.
• In the Philippines, cash and property dividends paid to resident individuals are subject to a 10% final withholding tax, while stock dividends are generally not taxed when issued proportionately.
• Under the Revised Corporation Code, a company's board can only declare dividends out of unrestricted retained earnings.
• Dividend yield measures the return on a share investment, calculated by dividing the annual dividend per share by the current share price.

What is a dividend

A dividend is a payment made by a corporation to its shareholders, representing a share of the company's profits. Companies listed on the Philippine Stock Exchange (PSE) often pay dividends to reward shareholders for their investment.

When a company generates profits, it can either reinvest them back into the business or distribute a portion to shareholders as dividends. For small business owners holding shares in other companies, dividends provide a source of passive income that doesn't require selling the underlying investment.

Types of dividends

Companies can distribute dividends in several forms depending on their financial position and strategic goals. The most common types of dividends are:

• Cash dividends: direct payments deposited into shareholder accounts, usually per share
• Stock dividends: additional shares issued to existing shareholders instead of cash
• Property dividends: distributions of non-cash assets such as inventory, equipment, or securities
• Special dividends: one-time payments made outside the regular dividend schedule, often after a particularly profitable period
• Preferred dividends: fixed payments made to preferred shareholders before any dividends go to common shareholders

Why companies pay dividends

Paying dividends signals financial stability and confidence in future earnings. Established companies with steady cash flows often pay regular dividends to attract investors who value consistent income.

Dividends also help companies return excess cash to shareholders when there are limited opportunities for reinvestment. This balance between paying dividends and retaining earnings affects a company's growth potential and shareholder returns.

Implications of issuing dividends

Declaring dividends affects both the company's finances and its relationship with shareholders. Here are the key implications:

• Reduces retained earnings and cash reserves, limiting funds available for expansion or debt repayment
• Creates shareholder expectations for future payments, which can be difficult to reduce without negative market reaction
• Signals management's confidence in the company's financial health
• May attract income-focused investors while deterring those seeking high-growth opportunities

How dividends are taxed in the Philippines

The tax treatment of dividends in the Philippines depends on who receives them. The Bureau of Internal Revenue (BIR) administers these taxes under the National Internal Revenue Code.

Cash and property dividends paid by a domestic corporation to a resident individual are subject to a 10% final withholding tax. The company withholds this tax before payment, and the shareholder does not include the dividend in their annual income tax return because it is a final tax.

Different rates apply to other recipients:

• Non-resident aliens engaged in trade or business in the Philippines: 20% final withholding tax
• Non-resident aliens not engaged in trade or business: 25% final withholding tax
• Dividends between two domestic corporations: exempt from tax

Stock dividends are generally not taxed when issued proportionately to shareholders. However, a later redemption or cancellation of those shares can be taxable.

There is no franking or dividend-imputation system in the Philippines. Unlike some countries where shareholders receive credit for corporate tax already paid, Philippine dividend tax is a separate final tax on the shareholder.

Key dividend dates

Four dates determine when and how dividends are paid to shareholders on the Philippine Stock Exchange. Understanding these dates helps you know when you qualify for a dividend payment.

• Declaration date: when the board of directors announces the dividend, including the amount per share and payment timeline
• Ex-dividend date: the first trading day when buying shares no longer entitles you to the upcoming dividend; share prices typically fall by about the dividend amount on this date
• Record date: the date when the company reviews its shareholder register to determine who receives the dividend; you must own shares before the ex-dividend date to be on record
• Payment date: when the dividend is deposited into shareholder accounts or distributed through broker channels

The dividend payment process

The Revised Corporation Code (Republic Act No. 11232) governs how Philippine companies declare and pay dividends. The board of directors can only declare dividends out of unrestricted retained earnings, and stock dividends require approval from stockholders holding at least two-thirds of the outstanding capital stock.

The Securities and Exchange Commission (SEC) oversees corporate compliance with these rules. Companies may distribute dividends at different intervals:

• Interim dividends: paid during the financial year based on interim profits
• Final dividends: declared after the financial year ends, based on audited results
• Special dividends: one-time distributions outside the regular schedule

Dividend reinvestment plans

A dividend reinvestment plan (DRP) lets shareholders use their cash dividends to purchase additional shares instead of receiving the payment. This approach can help compound your investment over time without paying brokerage fees on each reinvestment.

Some companies listed on the PSE offer DRPs, though they are less common than in other markets. If you participate in a DRP, the cash dividends you reinvest are still subject to the 10% final withholding tax. The tax is deducted before the reinvestment occurs, so you receive shares worth the after-tax dividend amount.

Dividend yield

Dividend yield measures the annual return you receive from dividends relative to the share price. It helps investors compare income potential across different stocks.

The formula is:

Dividend yield = annual dividend per share ÷ current share price

For example, if a company pays an annual dividend of ₱2 per share and the current share price is ₱40, the dividend yield is 5% (₱2 ÷ ₱40 = 0.05).

How dividends are calculated

Companies calculate dividends based on their net profit and the percentage they choose to distribute, known as the payout ratio. A higher payout ratio means more profit goes to shareholders, while a lower ratio indicates the company is retaining more for growth.

To calculate the dividend per share:

• Determine the total dividend pool: multiply net profit by the payout ratio
• Divide by the number of outstanding shares

For example, a company with ₱1,000,000 in net profit and a 40% payout ratio would distribute ₱400,000 in dividends. If there are 200,000 shares outstanding, each share receives ₱2.

Dividend calculation example

Here's a worked example showing how to calculate dividends for a Philippine company.

A company earns ₱200,000 in net profit for the year. The board decides to distribute 40% to shareholders, keeping 60% as retained earnings for future growth. There are 500,000 shares outstanding.

Total dividend pool: ₱200,000 × 40% = ₱80,000

Dividend per share: ₱80,000 ÷ 500,000 shares = ₱0.16 per share

If you own 10,000 shares, your gross dividend would be ₱1,600. After the 10% final withholding tax (₱160), you'd receive ₱1,440.

Dividends vs capital gains

Dividends and capital gains are two ways investors earn returns from shares. Dividends provide regular income while you hold the shares, while capital gains come from selling shares at a higher price than you paid.

The tax treatment differs significantly in the Philippines:

• Dividends: 10% final withholding tax for resident individuals
• Capital gains on unlisted domestic shares: 15% tax on net capital gains
• Shares sold through the PSE: 0.1% stock transaction tax on the gross selling price (instead of capital gains tax)

With dividends, you receive income regularly but have no control over timing. With capital gains, you decide when to sell, but the gain is only realised when you complete the transaction.

Simplify your dividend record keeping with Xero

Tracking dividend income and maintaining accurate financial records is important for tax compliance and understanding your overall cash flow. Xero's accounting software helps you categorise dividend receipts, reconcile bank transactions, and generate financial reports that give you a clear picture of your finances.

Whether you're receiving dividends from investments or managing dividend payments for your own company, Xero keeps your records organised and accessible. Ready to take control of your finances? Get one month free and see how Xero can simplify your accounting.

FAQs on dividends

Here are answers to common questions about dividends in the Philippines.

How are dividends taxed in the Philippines?

Cash and property dividends paid to resident individuals are subject to a 10% final withholding tax. The company deducts this before payment, so you don't include it in your annual income tax return.

Are stock dividends taxable in the Philippines?

Stock dividends distributed proportionately to all shareholders are generally not taxed at the time of issue. However, if those shares are later redeemed or cancelled by the company, the transaction may become taxable.

Can a company pay dividends if it has no retained earnings?

No. Under the Revised Corporation Code, a company can only declare dividends out of unrestricted retained earnings. Paying dividends from capital or borrowed funds is not permitted.

What is dividend yield?

Dividend yield is the annual dividend per share divided by the current share price, expressed as a percentage. It shows how much income you receive relative to your investment cost.

Related terms

• Equity
• Profitability
• Liabilities

Learn more about dividends

• Financing your business
• Debt versus equity finance
• Gearing ratio