Dividends are a common way for companies to reward their investors, but the process isn’t always straightforward. Some shareholders receive regular payouts, while others may not see any dividends at all. 

This article will explore what dividends are, why companies distribute them, and the factors that determine whether a shareholder gets paid.

What is a dividend?

A dividend is a payment made by a company to its shareholders. Companies can only legally provide dividends when they are making a profit.

The most common type of dividend is a monetary payment, but some companies may offer dividends in the form of additional shares. Dividends are usually paid on a per-share basis, meaning the more shares you own, the larger your payout.

If you’re looking for more information on how to issue a dividend or the rate of tax you pay on dividends, we’d recommend checking out our ultimate dividend guide. 

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Why do companies give dividends?

Companies pay dividends as a way to share their profits with shareholders, providing them with a return on their investment. Dividends can serve as an incentive for investors to hold onto their shares, signalling financial stability and rewarding long-term investment. For many investors, particularly those seeking regular income, dividend-paying stocks can provide a steady cash flow.

However, not all companies issue dividends. Some prefer to reinvest their profits back into the business to fund growth and expansion rather than distribute them to shareholders.

For company directors, paying dividends can also be a tax-efficient method of receiving income. Many directors, especially those who are also shareholders, opt to take a combination of salary and dividends. Since dividends are often taxed at a lower rate than salary income, this approach can help minimise overall tax liability while still ensuring a consistent income.

Do all shareholders get dividends?

The answer isn’t straightforward. While many shareholders do receive dividends, several factors determine whether a payout is made and who qualifies for it. These factors include the type of shares you own, the company’s dividend policy, and its financial health.

Reasons why dividends might not be paid:

1. Types of shares held

Not all shares qualify for dividends. Ordinary (or common) shareholders typically receive dividends only if the company decides to issue them. Whereas preference shareholders often have a guaranteed payout before ordinary shareholders receive anything. 

2. Company’s financial position

A company cannot legally pay dividends unless it has sufficient profits to do so. If the company isn't profitable, it is prohibited from issuing dividends. Even if a company is making a profit, it may choose to reinvest funds back into the business for growth, pay down debt, or address financial challenges instead of issuing dividends.

3. Board of directors’ decision

Dividends are not an automatic entitlement. The board of directors has the authority to decide whether to issue dividends, how much to pay, and when to distribute them. Even if the company is profitable, the board may choose to not pay dividends.

4. Shareholders agreement

In some cases, shareholders' agreements or company policies may specify who is eligible for dividends. Founders or major stakeholders may have different agreements that dictate whether all shareholders receive dividends or not.

5. Timing of share ownership

To receive a dividend, shareholders must own the shares before the ex-dividend date. If you purchase shares after this date, you will not be entitled to the upcoming dividend payout.

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Final thoughts on dividends for shareholders

So, answering the question of “do all shareholders get dividends?” — the reality is that it depends. Whether or not you get a payout depends on the type of shares you own, the company’s financial health, and the decisions made by its board. 

If receiving dividends is a key part of your investment strategy, researching a company’s dividend history and policies before buying shares will help you understand whether you’re likely to receive payouts.

For Limited companies looking to manage dividends efficiently, our expert accounting services can help make sure you’re making the most of your financial strategy. Find out more about how we can support your Limited company accounting needs here. 

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