CFD Dividends

The dividend is the share of the profit that is offered to someone that has a percentage of the company’s shares in their possession. These dividends can consist in money, in property or in stock. The way these dividends are mentioned allow you to understand what you get in return for each individual share. If you multiply the number of shares that you have with the dividend per share you can find out how much you will make. These dividends are given to the shareholders twice each year. The name of the initial dividend is interim, while the second one is called final.

CFD Trading and Earning Dividends

Since the CFD is considered a share in every respect, if you hold these CFDs you will benefit from the dividends that are offered by the company. The returns you get from dividends are greater actually, since you only invested a small amount but you get the same dividends as everyone else.

If a company pays $1 for each share, you get the same amount as everyone else. Since you paid only 5% as a deposit, the return on the investment is much bigger than a regular share holder that paid the full amount for their shares. If someone would buy 1000 of those shares at $20 each one, they would have to spend $20,000 total. With the CFD method you pay the 5% margin only, so only $1,000 goes out of your pocket. Both the guy that spent $20,000 and the guy that spent $1,000 get the same amount in dividends, so you can see where the advantage lies. The return on your investment is much better with the CFDs though.

How to get the CFD dividends

In order to get the payments for your CFDs dividends you will need to be in a long position when it comes to the CFD and you need to keep them up to the day when dividends are paid. You can close the position when the dividend day comes and you will be the one getting that money. Ex-dividend is a date when you have to own that stock in order to be eligible and get that payment.

The Franking Credits

These are received by the shareholders and they are considered tax credits. These are received for the taxes that were paid by the company on the profits they made, which happened before the dividends were paid. When it comes time to file the income taxes you mention both the franking credits and dividends. If you do this you will not be taxed twice for the dividends. If you’re a CFD holder you don’t get the benefit of the franking credit, so that’s something to consider.

CFD Financing

This is what the daily interest is called, when it’s applied to the open CFD position. This interest is charged if the position remains open once the trading day is over. The interest is taken out of the dividends and the commissions, giving you the net profit. The amount is not much, but in the long run you will feel your profits going down if you hold that position.

In order to pay as little interest as possible you need to find shares that go up overall and that also give out good dividends. You keep them a few weeks before the ex-dividend date and that should be enough to take advantage of the dividends while not paying much interest.

Short Selling

By short selling you presume that the value of the CFDs will go down, allowing you to purchase them again later when they’re cheaper. The difference between the selling and the buyback price is the profit you make by short selling. You will have to get rid of the CFD position if you’re short selling before the date of the ex-dividends, in order not to be debited.

Conclusion

If you want to get some cash flow going from your open CFD positions, the dividend is a great way to do that. You can even create a strategy that can include the use of dividend payments in order to increase how profitable your trading is. It’s a good way to do that, but only as long as you keep in mind the interest charges and the way they can eat some of those profits.