Dividend
A dividend is a portion of a company's profits paid to shareholders. Learn how dividends work in South Africa.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Dividends Tax in South Africa is a 20% withholding tax on dividends, borne by the shareholder and withheld by the company paying the dividend or a regulated intermediary.
- Four key dates determine when you receive a dividend: the declaration date, ex-dividend date, record date and payment date.
- Dividends provide regular income while you hold shares, whereas capital gains are realised only when you sell shares at a profit.
- Before declaring a dividend, a South African company's board must pass a resolution and satisfy the solvency and liquidity test under the Companies Act 71 of 2008.
What is a dividend
A dividend is a payment a company makes to its shareholders from its profits or reserves. When a company earns more than it needs to reinvest in the business, its board of directors can choose to distribute some of those earnings to the people who own shares in the company.
As a small business owner, you might receive dividends if you hold shares in other companies, or you might pay dividends to shareholders in your own company. Understanding how dividends work helps you make informed decisions about your business finances and personal investments.
Types of dividends
Companies can distribute profits to shareholders in several ways. The type of dividend a company pays depends on its financial position and strategy.
- Cash dividends: the most common type, where shareholders receive a direct cash payment per share they own
- Stock dividends: shareholders receive additional shares in the company instead of cash, increasing the total number of shares they hold
- Property dividends: shareholders receive non-cash assets such as physical goods, real estate, or shares in a subsidiary company
- Special dividends: one-off payments made outside the regular dividend schedule, usually when a company has excess cash from a strong period or an asset sale
Why companies pay dividends
Companies pay dividends to reward shareholders and signal financial stability. A consistent dividend history can attract investors who are looking for reliable income from their investments.
Mature, established companies with steady profits are more likely to pay regular dividends. Younger or fast-growing companies tend to reinvest their earnings back into the business to fund expansion rather than distributing them to shareholders.
Implications of issuing dividends
Paying dividends affects your company's finances in several ways. Here are the key considerations for business owners.
- Dividends reduce your company's retained earnings, leaving less cash available for reinvestment or covering unexpected costs
- Dividends create an expectation among shareholders; reducing or stopping payments can signal financial difficulty
- Dividends are not tax-deductible for the company paying them, unlike interest payments on debt
- Dividends can improve your company's reputation with investors and make it easier to raise capital in the future
How dividends are taxed in South Africa
South Africa does not have a franking credit or dividend imputation system. Instead, dividends are subject to Dividends Tax, a withholding tax separate from income tax.
Dividends Tax in South Africa is a 20% withholding tax on dividends. The tax is borne by the shareholder (the beneficial owner) and withheld by the company paying the dividend or by a regulated intermediary such as a stockbroker. Dividends Tax replaced Secondary Tax on Companies (STC) from 1 April 2012.
Not all dividends attract the 20% tax. Key exemptions apply to dividends paid to South African resident companies, retirement funds and Public Benefit Organisations, provided the recipient submits the required declaration and undertaking to the company paying the dividend.
It is important to understand how Dividends Tax interacts with corporate income tax. South Africa's standard corporate income tax rate is 27% for years of assessment ending on or after 31 March 2023, unchanged in Budget 2026. A company pays corporate income tax on its profits first; when those after-tax profits are distributed as dividends, the shareholder then bears the 20% Dividends Tax, withheld at source.
Key dividend dates
Four key dates determine your eligibility for a dividend payment and when you will receive it. Understanding these dates helps you plan your cash flow and investment decisions.
- Declaration date: the date the company's board of directors announces it will pay a dividend, including the amount per share and payment schedule
- Ex-dividend date: the cut-off date for buying shares and still receiving the dividend; if you buy shares on or after this date, you will not receive the upcoming payment
- Record date: the date the company checks its register to confirm which shareholders are eligible for the dividend; this is typically one business day after the ex-dividend date
- Payment date: the date the dividend is actually paid into your account
Share prices often drop by approximately the dividend amount on the ex-dividend date. This happens because new buyers on that date are not entitled to the upcoming payment, so the share's value adjusts to reflect this.
The dividend payment process
Dividends are paid on a regular schedule determined by each company. Most JSE-listed companies pay dividends either semi-annually or annually, though some pay quarterly.
Companies may issue three types of dividends during their financial year.
- Interim dividends: paid partway through the financial year, usually after the company releases its half-year results
- Final dividends: paid after the end of the financial year, once full-year profits are confirmed and approved at the Annual General Meeting (AGM)
- Special dividends: one-off payments made outside the regular schedule when a company has surplus cash or completes a major transaction
Before declaring a dividend, the board of a South African company must pass a resolution and satisfy the solvency and liquidity test under section 46 of the Companies Act 71 of 2008. The company's Memorandum of Incorporation may impose additional requirements. A company can only pay dividends from its profits and must remain solvent after the payment.
Dividend reinvestment plans
A dividend reinvestment plan (DRP) lets you automatically use your dividend payments to buy more shares in the company instead of receiving cash. Many JSE-listed companies offer DRPs to their shareholders.
DRPs can help you grow your investment over time through compounding. Each dividend payment buys you more shares, which then generate their own dividends, gradually increasing your total holding without requiring you to invest additional cash.
Some companies offer shares through their DRP at a small discount to the current market price. Keep in mind that even though you do not receive cash, reinvested dividends are still subject to Dividends Tax in South Africa.
How dividends are calculated
Your dividend payment is calculated based on the number of shares you own and the dividend amount per share declared by the company. The formula is straightforward.
Dividend received = dividend per share × number of shares owned
For example, if a company declares a dividend of R0.50 per share and you own 1,000 shares, your total dividend payment would be R500.
Companies set their dividend per share based on factors such as total profit, how much they want to retain for reinvestment, and their target payout ratio. The payout ratio is the percentage of net profit a company distributes as dividends.
Dividend calculation example
Here is a worked example showing how dividends flow from company profits to shareholder payments.
Waldo Manufacturing earns a net profit of R200,000 for the year. The board of directors decides to distribute 40% of the profits as dividends, giving a total dividend pool of R80,000.
Waldo Manufacturing has 500,000 shares on issue. To find the dividend per share, divide the total dividend pool by the number of shares.
Dividend per share = R80,000 ÷ 500,000 = R0.16
If you own 10,000 shares in Waldo Manufacturing, your dividend payment would be calculated as follows.
Your dividend = R0.16 × 10,000 = R1,600
If the company has paid corporate income tax at the 27% rate, the shareholder still has 20% Dividends Tax withheld on the R1,600 (R320), so they receive R1,280 net.
Dividends vs capital gains
Dividends and capital gains are two different ways you can earn a return from your investments. They suit different financial goals and risk profiles.
Dividends provide regular income while you continue to hold your shares. You do not need to sell anything to receive this income, making dividends a popular choice for investors who want a steady cash flow from their portfolio.
Capital gains, on the other hand, are the profit you make when you sell shares for more than you paid for them. This approach relies on share price growth over time. You only realise the gain when you actually sell. South Africa uses an inclusion-rate system for capital gains tax: 40% of a natural person's net capital gain is included in taxable income (80% for companies), resulting in a maximum effective rate of about 18% for individuals.
Many investors use a combination of both strategies. Dividend-paying companies can also deliver capital gains if their share price rises over time.
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FAQs on dividends
Here are answers to common questions about dividends in South Africa.
How are dividends taxed in South Africa?
Dividends Tax is a 20% withholding tax on dividends, borne by the shareholder and withheld at source by the company or a regulated intermediary. It is separate from personal income tax.
What is the difference between Dividends Tax and STC?
Secondary Tax on Companies (STC) was a tax paid by the company on dividends declared. Dividends Tax, which replaced STC from 1 April 2012, shifts the burden to the shareholder (the beneficial owner) while still being withheld by the company.
Do all companies pay dividends?
No, not all companies pay dividends. Growing companies often reinvest profits instead, and a company can only pay dividends when it has sufficient profits and remains solvent after the payment.
How do dividends affect share prices?
Share prices typically drop by approximately the dividend amount on the ex-dividend date. This adjustment reflects that new buyers after that date will not receive the upcoming dividend payment.
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.