There are thousands of ways to invest in the stock market. From passive growth with the market, through buying index ETFs, to risky futures contracts. Dividend is a relatively quiet and prudent form of investing . In addition, statistics confirm its effectiveness – in the long run, patient “payers of profits” outnumber speculators. Today let’s check out dividends and how you can earn them.

The stock exchange has become such a dominant element in the financial markets that not only brokers who wear expensive suits show interest in it. Considerations regarding investments or the valuation of individual assets can be heard at the hairdresser, in a taxi, or during a family dinner. This is certainly influenced by the crazy rises of Bitcoin and US stocks as well as apps that allow you to buy securities without any commission – which a few years ago seemed completely unrealistic.

However, an experienced investor knows that correlating with accelerating trends is a path that leads nowhere , because all price snapshots end either in a strong correction or in a complete panic in the market. Similarly, it is a pity to believe that in each season you will find a “magic company” that will allow you to earn 200 or 300%. It may be successful many times over, but such a tactic would quickly be crushed by unfavorable probability theory. So how do you leave dreamland and stand on solid ground and finally start making money? Earnings may answer that question.

What is a dividend?

Let’s start with the divisor. It is part of the company’s dividend paid to shareholders – a kind of reward for investing capital in the securities of a particular economic entity. To put it simply – if you have stock in a dividend company, you can count on receiving a portion of its dividend from the previous year each year.

The amount of dividend per share is set, for example 3 zlotys. In this case, if you are the owner of 3 shares, you will receive 9 PLN minus Belka tax (which is 19%). With 1,000 shares, you can count on PLN 3,000 minus 19%.

For dividends to be paid, they must be approved at the general meeting of shareholders . It specifies whether it is justified to pay a dividend in a given year and what percentage of the previous fiscal year’s profit will be allocated to it.

Therefore, it is worth remembering that annual dividends are not something that is 100% certain. This was well demonstrated in 2020, when many companies refrained from paying dividends. This was due to the unstable situation in the market and, of course, the decline in corporate earnings. However, it is worth noting that in 2021, many companies will pay dividends in two years, so the profit can be really huge.

In the case of some companies, we may experience a doubling of dividends during the year. An example is IT product distributor ASBIS, which split profits in 2018 and 2019 into two.

When are the dividends paid?

The most important in this matter is the so-called dividend history and dividend distribution date (the date of which is determined by the company’s board of directors). what do you mean?

Dividend history history – If on that day you hold shares of a particular company until the end of the session, you are entitled to a dividend. So on the dividend date, your brokerage account will receive a certain profit per share.

Dividend Day – As mentioned, you will receive the allocation of your dividend by the end of that day. The dividend date is usually about two weeks after the record date. Influenced by the WSE Good Practice Recommendation .

For example, in 2020, Orlen decided to pay PLN 1 in dividend per share (this lower amount was caused by covid disruptions). The registration date is July 14, 2020, and the payment date is July 28.

However, the people who only bought Orlen’s securities on July 14 must have been very surprised two weeks later to see that no payments appeared in their brokerage account…why? Because the National Securities Depository records the shares it keeps within two trading days . Therefore, in order to receive dividends from Orlen in the above situation, it was necessary to have shares of this company in the portfolio until the end of the trading session on July 12.

Thus, the recording date is always two days before the officially announced date . It is also useful not to confuse weekdays with trading days – the exchange does not work on weekends or holidays.

Some may be surprised that you don’t have to be a shareholder in a company for an entire year to receive a dividend. You only need one day of the right to the dividend. You can simply sell the shares the next day. However, such a search for profit may be ineffective . First, because when a company announces a record-breaking date, its stock price may go up. The second reason is the standard subtraction of the dividend amount from stock valuation. Thus, before dividends are paid, we will buy expensive “securities”, and after receiving them, their price will be “reduced”. Dividend profit may not cover this gap. Thus , the dividend game is recommended for long-term investors – those who buy cheap stocks relatively early.

How do I buy stocks to earn profits?

It’s simple – to get dividends, we have to buy shares of a company that shares its profits with its shareholders. Securities (i.e. shares) are purchased through brokerage accounts provided by brokerage houses. In the Polish market, the investor has a great choice – most banks run their own brokerage offices.

However, apart from banks, there are also non-banking investment platforms. It is they who tempt them with more interesting promotions than the banks. For example, the Polish XTB broker offers the opportunity to buy real shares with 0% commission . In banking offices, the cost of this pleasure is usually 0.39%. Here are three of the most interesting brokerage account offers that are worth taking advantage of.

Last update date: March 7, 2022

The ranking is created according to the frequently selected offers

		–	worker ? CFDs available on US bonds, costs depend on the specific instrument Bond trading commission	0% ? 0% commission on monthly sales of €100,000. Transactions exceeding this limit will be charged 0.2% (minimum €10) commission. Stock trading commission	0 euros or 10 euros ? PLN 0 if at least one transaction has been opened for 365 days or there are no funds in the account, if not opened Account management	431 people chose this offer ” Check “ ⊕ Add to Compare ⊖ Remove from comparison
eToro – Investment Account		Polish zloty 0 ? PLN 0 (only for clients of eToro Europe Ltd and eToro UK Ltd and does not apply to short or leveraged transactions in stocks) Commission on index contracts	–	Polish zloty 0 ? PLN 0 (only for clients of eToro Europe Ltd and eToro UK Ltd and does not apply to short or leveraged transactions in stocks) Stock trading commission	Polish zloty 0 ? You can join eToro for free – every registered user gets a free $100,000 demo account. However, like all online platforms, eToro charges different spreads and fees on certain trades and payments. Account management	178 people chose this offer ” Check “ ⊕ Add to Compare ⊖ Remove from comparison	67% of accounts that invest in CFDs lose money
		Polish zloty 0 ? When you trade indices, TMS Brokers does not charge any fees for holding overnight indices (there are no funding costs, such as SWAP). This is very good news for investors in the medium and long term. The only cost is the spread, which is the difference between the buying and selling price. Check price differences in stock indices in TMS view. Commission on index contracts	–	0% or 0.19% ? 0 PLN Commission on foreign exchange 0.19% or minimum. PLN 5 commission on WSE Stock trading commission	Polish zloty 0 ? Only invoice charges may arise if there has been no account activity for 12 consecutive months. Then the account maintenance fee will be PLN 9 per month. Account management	76 people chose this offer ” Check “ ⊕ Add to Compare ⊖ Remove from comparison

The offered financial instruments, especially those that are leveraged, carry the risk of experiencing losses in excess of the invested capital.

It takes 15-30 minutes to open a brokerage account. Once we have access to our investment account, all we have to do is transfer money to it and place an order to buy shares of a company or companies that are known to pay high dividends. When we get the right on the day of the dividend, after more or less two weeks, additional money will appear in our brokerage account i.e. dividends.

Some people buy additional shares with dividend money, while others pay them to a personal account so that they can enjoy their earned money right away.

When investing in shares of dividend companies in the amount of 100,000 PLN, you can even get several thousand PLN in dividends. So it is not surprising that some people pay this money immediately as a return on investment.

IMPORTANT : We are not entitled to receive dividends unless we have real shares. If we invest in derivative instruments, that is, the so-called derivatives, such as futures contracts, we are not shareholders in a particular company, but we speculate on the future valuation of its shares. So we are not entitled to any profits.

How do you calculate the profit?

Profit from dividend is normally given as a percentage. It is calculated on the basis of earnings per share and the current market price of the security. When the cost of one share of the company is PLN 150, and the dividend for one “sheet” is PLN 15, we are dealing with a profit of 10%. However, it must be remembered that stock prices are constantly moving, and this is affected by the attraction between supply and demand.

Therefore , despite the equal amount of earnings per share, the rate of return can be completely different – it all depends on the price at which we bought our securities.

For example, Ambra, which produces and distributes alcohol, paid a dividend of 0.70 PLN per share on November 17, 2020. What is the rate of return? It all depends on the share price. And yes:

• If the shares were acquired on the dividend date (October 23, 2020) for PLN 18.10, the rate of return would have been 3.86%.
• If the shares were bought 3 days ago, i.e. on October 20 for 17.30 PLN, the rate of return was 4.04%
• If the shares were bought during the Covid gap on March 12 for 12 PLN, in October 5.83% of the dividend was collected.

Interestingly, after the dividend cut off the valuation of Ambra’s stock, the company’s price quickly returned to its place. Now let’s do a short simulation to see how much you can earn from it.

If 1,000 Ambra shares were purchased on October 23 for PLN 18,100 (18.10 PLN per share). On November 17, the brokerage account showed a dividend of 567 PLN (700 PLN minus 19% of the Belka tax). After cutting the dividend and tightening the offer, the share price initially fell to PLN 16.65, but in January 2021 it reached PLN 20. By selling their shares at this price, an additional 1538 PLN was added to the account after the Belka tax cut. The final profit amounted to PLN 567 (from dividends) + PLN 1,538 from the sale of securities with profit.

However, it is worth remembering that stock prices may have fallen as well, and the dividends promised by the company will always be ours.

If the rate of return on earnings seems too unattractive, it is worth taking a look at the companies that shared their dividends in 2020 more generously.

Remember to cut the dividend from the company’s stock price. When the dividend yield is 5-15%, this may not be a big deal. However, there is a profit of 50% (!) And after such a pause, the company’s stock price will not return to the old valuations for long. An example is OPTeam, which paid a dividend of 47.11% in December 2020. This is what the company’s stock price looks like after paying a huge dividend.

So why do we need such a high return, when stock prices after their cuts drop dramatically? In the case of such massive profits, we are actually going to “zero”, rather than profit. Dividends greater than 20% should increase our vigilance.

See also: What to invest in in 2022?

How do you choose the right companies?

We already know more or less which companies should be interested in the context of dividends. However, let’s organize this knowledge and add new elements to be able to offer the features of an “ideal dividend company”, although finding one on Polish soil may not be easy at all … What characteristics should a proper dividend company have ?

• The company should be in good financial condition , which can be confirmed by the stable profit growth year on year.
• Ideally, the company should remain in the hands of its founders – the father will not allow his child to do well.
• The company must have a good opinion and press – in matters of stock exchange, the issue of fashion and positive associations is very important. The valuation of desirable companies likes to grow.
• The company should have an understandable business model that can be explained in a few sentences. It’s a good idea to sell essential products or services – then it can work “forever”.
• Equally important is the liquidity of the company’s stock and its high capital – when we invest in unpopular securities of a small company, we will have trouble selling it. Great companies give you more confidence.
• The company’s stock price should show, at least to a minimum, an upward trend in the long term . Companies whose price jumps from “gang to gang” are not trustworthy.
• Dividends have to be paid on a consistent basis and their price has to go up – this is by far the most important point. These companies will simply give you money on long-term investments.

When choosing companies for dividends, the topic of the current valuation is not so important, but it is worth killing two birds with one stone. That is, bet on companies that pay dividends and whose valuation is increasing regularly. Examples of such companies are the previously mentioned Kęty and Ambra or Dom Development. However, it should be noted that Grupa Kęty shares are already very expensive and buying them above PLN 500 per share may be risky.

Now let’s look at the selected companies that have been consistently paying dividends on Polish soil for the longest time.

Speculation vs Dividend

Some people sometimes refer to dividend investing as a boring form of the stock market game. “There are no feelings in it and I have to wait a long time for the results to come in.” Such comments can be quickly responded to with Warren Buffett’s famous charter.

The stock market is where wealth passes from impatient to patient.

Trying to secure your emotions through constant speculative play should end in bankruptcy . This is evidenced by the statistics of the trading platforms that day traders try to tame CFDs on. Depending on the broker – 70-80% of investors lose money with this type of adrenaline injection. For the sake of excitement, it is best to bet the Champions League final at a bookmaker or take a ride on a roller coaster.

The stock market game requires calm and not be guided by emotions. When it comes to long-term investing, things are slow. However, the effect after many years may be more interesting for our portfolio than in the case of constant speculation and the search for opportunities.

Quiet “profits” often earn more than speculators who rely on the constant gatherings of companies from another fashionable industry. This is confirmed by the chart below – in the US, classic dividend stocks have made better profits over the years than the S&P 500, which also includes tech unicorns like Apple .

Of course, this does not mean that you should focus only on dividends and completely abandon the search for interesting companies with growth potential. Shares of the famous Tesla made it possible to earn up to 500% in 2020, and in Poland’s NewConnect, the shares of the Columbus solar farm increased by 200-300%.

However, it must be remembered that one day expensive companies will lose their breath and the question is whether we will be able to jump out of investing early . Math also plays a role in our disadvantage – for example, there are over 400 companies on the Polish stock exchange, and only a dozen or so companies will complete huge hikes in a given year. Will we be able to make the right decision for sure? The “returner” has no such problem and sleeps more peacefully.

The American Dream, that is, the land of the distributive aristocrats

The United States is a mecca for dividend investors. It is much easier to find companies on the American stock exchange whose stock price has been steadily growing for years, and which additionally pay higher and higher dividends. Procter & Gamble or Coca-Cola has been paying dividends continuously for nearly 60 years! It’s hard to compare it with Ambra or Śnieżka… So how do we get a foreign yield?

We have to buy foreign shares of dividend companies (eg on XTB). However, in this case, we are not only covered by local taxes and settlement.

When investing in the most popular US stocks, you will need to settle using Form W-8BEN, which is usually found in our brokerage account. If you fail to prove your tax residency, the dividend tax will be doubled at 15%. What other things are worth paying attention to?

• If the country from which we want to buy shares has an agreement with Poland on the avoidance of double taxation – we will pay the tax only once and it will not be higher than the Belka tax of 19% . For example, in the case of US “Securities”, we will have to pay an additional 4% while settling taxes, because 15% has already been collected. If in a particular country the capital gains tax is higher than 19% (for example, in Denmark it was 42%!), then in Poland the fee will not be charged. Unless, of course, it is a country that has an agreement with our country. In the absence of a double taxation agreement – unfortunately, we will pay the tax twice.

• Foreign dividends are not paid in zlotys, but in dollars or euros. Currency conversion is made based on the NBP exchange rate applicable on the date of dividend payment .

Dividends – Income Tax & Adjustment

As we have mentioned many times in this text – profit from dividend or sale of shares is subject to capital gains tax i.e. Belka tax which is 19%. It is clear that this unofficial name comes from the name of the former finance minister who decided to introduce it.

This tax has been with us since 2002. She probably won’t make it to her 20th or 25th birthday, because there’s a chance it will be reduced or liquidated entirely one day. Such assumptions appear frequently in the electoral promises of individual political parties.

However, adjusting for PIT in terms of dividend yield is quite simple. The brokerage firm is obligated to deduct 19% of the tax before it pays us our profits. Thus, we do not have to include dividend income on our annual tax return.

Is it worth investing in dividend companies? In our opinion, this is a wise and interesting way of allocating capital. However, each investor must make his own decision. We wish you high profits and look for cheap dividends for companies!

Do you invest in dividends? Do you have choices for companies that might one day become a dividend aristocracy? Share your opinion in the comments section!

sources:

https://www.orlen.pl/PL/RelacjeInwestorskie/Gielda/Strony/Dywidenda.aspx

https://www.ambra.com.pl/relacje-inwestorskie/informacje-finansowe/

https://www.ican.pl/b/system-podatkowy-w-polsce-na-tle-innych-krajow-oecd/P10qxFgaI

https://pl.wikipedia.org/wiki/Podatek_od_dochod%C3%B3w_kapita%C5%82owych_w_Polsce