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When a company completes a financial year successfully, it usually earns a profit.
Shareholders are entitled to a share in the
annual profit. The dividend is the portion of
the net profit that a corporation
distributes to its shareholders. Dividends are sometimes referred to as "interest on shares".
Assessment base
Public limited companies are required by law to allocate 5% of their reported
net profit to the general reserves, provided these have not yet reached 20%
of the paid-up share capital. There are also
further statutory and company-specific provisions on what needs
to be done with the net profit. This reduces the assessment base for the
dividend amount,
but in turn strengthens the capital base. Dividends are not distributed in
the year during which the net profit was generated, but only shortly after the general
meeting of shareholders in the following
year.
Determination
The dividend may be determined only after the appropriate allocations have been made in
accordance with applicable laws and the articles of association. Afterwards the management can propose
a dividend payment to the general meeting of shareholders. This motion is put before
the shareholders, who determine the exact amount by vote. The dividend is denominated in Swiss francs
(or the share's nominal currency) and always pertains to one share.
Taxes
The shareholder must declare the dividend as income in their tax yield. A
withholding tax also applies, which is why a distinction is made between the
gross dividend (before
deduction of withholding tax) and the
net dividend
(after deduction of withholding tax). Taxable income is increased by the amount of the gross dividend.
For example, if you own 200 shares and the general meeting of shareholders declares a dividend of
CHF 2.50, the gross dividend is CHF 500. The withholding tax
of CHF 175 is deducted before the dividend is paid but can be reclaimed in
the shareholder's tax yield.
Dividend policy
The management board decides on the basis of financial and business considerations what
proportion of the profit should be retained within the company. Between zero and one hundred per cent of
the net profit can be distributed as dividends. Companies with a low
payout ratio (dividend payment as a proportion
of profit) or no dividend at all retain a larger share of the profits within the company, for example
for research, development, production or marketing. This may result in price gains in the medium to long
term, thus compensating investors indirectly for the loss of dividends. Companies try to pursue
a consistent dividend policy
as far as possible. The aim is to pay out the same dividend as the previous year, regardless of the
financial results for the year.
Entitlement to dividends
Most general meetings of shareholders of Swiss companies take place in April or May. Entitlement
to the exercise of membership rights (e.g. voting rights) and proprietary rights (e.g.
the dividend) is determined by various dates. The companies mostly determine these dates themselves.
Market standard for cash distributions
 | | | Date | Event | | Record date |
This date determines which shareholders are entitled to receive a dividend. Each shareholder entered in the shareholders' register at the record date is entitled to a dividend.
| | Ex date |
The ex date is the first exchange day on which the shares are traded ex dividend, i.e. without dividend. Usually, but not necessarily, the opening price is the last closing price less the dividend amount.
| | Payment date |
This is the day on which the dividends are paid out to those shareholders who, according to the record date, are entitled to dividend payments regardless of whether the shares are still in the custody account or have already been sold.
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