What Are Dividends? (Quick Answer)
Dividends are cash payments made by companies to their shareholders as a reward for owning shares. In New Zealand, dividends often come with imputation credits, which represent tax already paid by the company, providing additional value to NZ tax-resident investors.
Complete Guide Contents
Dividend Basics
- • What are dividends and how do they work?
- • Types of dividends in New Zealand
- • Dividend payment process and timing
- • Ex-dividend dates explained
- • Dividend reinvestment plans (DRIPs)
NZ-Specific Information
- • Imputation credits system
- • Tax implications for NZ residents
- • PIE vs non-PIE dividend taxation
- • Resident withholding tax (RWT)
- • International dividends and FIF rules
Investment Strategies
- • Building a dividend portfolio
- • Dividend yield vs dividend growth
- • Best NZ dividend stocks by sector
- • Dividend ETFs and managed funds
- • Risk management and diversification
Tools & Calculations
- • Dividend yield calculator
- • Imputation credit calculator
- • Tax-adjusted return calculations
- • Portfolio income estimator
- • Dividend growth projections
What Are Dividends?
Dividends are payments made by companies to their shareholders, typically in cash, as a way of distributing a portion of the company's profits. When you own shares in a dividend-paying company, you become entitled to receive these payments based on the number of shares you hold.
Key Dividend Concepts
Declaration Date
When the company's board announces the dividend payment and amount.
Ex-Dividend Date
The cutoff date to be eligible for the dividend. You must own shares before this date.
Record Date
The date when the company determines which shareholders are eligible for the dividend.
Payment Date
When the dividend is actually paid to eligible shareholders.
How Dividends Work in Practice
Let's say you own 1,000 shares in Spark New Zealand (SPK), and the company declares a dividend of $0.125 per share. You would receive $125 in dividend income (1,000 shares × $0.125 = $125). In New Zealand, this dividend would also come with imputation credits, effectively reducing your tax liability.
Example: NZ Dividend Payment
Shares owned: 1,000 Spark (SPK)
Dividend per share: $0.125
Imputation credit rate: 28%
Cash received: $125
Imputation credits: $48.61
Total gross dividend: $173.61
Types of Dividends in New Zealand
Regular Dividends
- Interim Dividends: Paid mid-year (usually March-May)
- Final Dividends: Paid after year-end (usually September-November)
- Quarterly Dividends: Some companies pay every 3 months
Special Dividends
- Special Dividends: One-off payments from exceptional profits
- Capital Returns: Return of shareholders' capital
- Bonus Shares: Additional shares instead of cash
Understanding Imputation Credits
Imputation credits are one of the most important features of the New Zealand dividend system. They represent the company tax already paid on the profits distributed as dividends, and they can significantly boost your after-tax returns.
How Imputation Credits Work
When a New Zealand company pays dividends, they “impute” or attach tax credits to those dividends. These credits represent the company tax (currently 28%) already paid on the profits being distributed.
Calculation Formula:
Imputation Credit = (Dividend ÷ 0.72) - Dividend
For a $100 dividend: ($100 ÷ 0.72) - $100 = $38.89 imputation credit
Benefits of Imputation Credits
Tax Reduction
Credits reduce your income tax liability dollar-for-dollar
Refundable
Excess credits can result in tax refunds
Unique to NZ
Advantage for NZ tax residents only
Dividend Taxation in New Zealand
Important Tax Considerations
Dividend taxation can be complex. This is general information only and you should consult a tax advisor for advice specific to your situation.
Resident Withholding Tax (RWT)
Most New Zealand dividends are subject to Resident Withholding Tax (RWT), which is deducted before you receive the dividend payment. The RWT rates are:
RWT Rates (2025)
- • 10.5% - Income up to $14,000
- • 17.5% - Income $14,001 - $48,000
- • 30% - Income $48,001 - $70,000
- • 33% - Income over $70,000
- • 39% - Income over $180,000
How It Works
Your broker or investment platform will deduct RWT at the rate you specify (based on your tax rate). If too much or too little is deducted, you'll pay the difference or receive a refund when you file your tax return.
PIE vs Non-PIE Dividends
PIE Fund Dividends
- • Taxed at your prescribed investor rate (PIR)
- • Maximum PIR is 28%
- • No need to declare in tax return
- • Includes most ETFs and managed funds
Direct Share Dividends
- • Subject to RWT
- • Must be declared in tax return
- • Benefit from imputation credits
- • Includes individual NZX stocks
Dividend Investment Strategies
Dividend Yield vs Dividend Growth
High Dividend Yield Strategy
Focus on stocks with high current dividend yields (typically 5%+). These provide immediate income but may have limited growth potential.
Best for:
- • Retirees seeking income
- • Conservative investors
- • Those in lower tax brackets
Dividend Growth Strategy
Focus on companies that consistently increase their dividends over time. Lower initial yield but growing income stream.
Best for:
- • Long-term investors
- • Those building wealth
- • Inflation protection
Best NZ Dividend Sectors
Banking & Finance
ANZ, Westpac, and other major banks typically offer strong dividend yields.
Utilities
Mercury, Genesis, and other power companies provide stable dividends.
Telecommunications
Spark and Chorus offer attractive dividend yields with imputation credits.
Dividend Tools & Calculators
Use our free tools to analyze dividends, calculate yields, and plan your dividend investment strategy.
Frequently Asked Questions
How often do NZ companies pay dividends?
Most New Zealand companies pay dividends twice a year - an interim dividend (usually March-May) and a final dividend (usually September-November). Some companies like banks may pay quarterly dividends, while others pay annually or have special dividend payments.
Do I need to own shares on the ex-dividend date?
You must own shares before the ex-dividend date to be eligible for the dividend. If you buy shares on or after the ex-dividend date, you won't receive that dividend payment. The ex-dividend date is typically 2-3 business days before the record date.
What happens to the share price on ex-dividend date?
Typically, the share price drops by approximately the dividend amount on the ex-dividend date. This is because new buyers won't receive the dividend, so they're willing to pay less for the shares. However, market forces and other factors can influence the actual price movement.
Are dividends guaranteed?
No, dividends are not guaranteed. Companies can reduce, suspend, or cancel dividend payments at any time, especially during difficult economic conditions. This is why it's important to research company fundamentals and dividend sustainability when investing.
Should I reinvest my dividends?
Dividend reinvestment can be powerful for long-term wealth building due to compounding. Many brokers offer automatic dividend reinvestment plans (DRIPs). However, consider your overall portfolio allocation, tax implications, and whether you need the income for living expenses.
How do imputation credits work for non-residents?
Imputation credits are only available to New Zealand tax residents. Non-residents cannot claim imputation credits and are subject to Non-resident Withholding Tax (NRWT) on dividend payments, which varies depending on tax treaties between NZ and their country of residence.