Dividend
A payment made by a company to its shareholders, usually from profits. In NZ, dividends come with imputation credits that reduce your tax. Some investors build portfolios around dividend-paying stocks.
A dividend is a payment a company makes to its shareholders, usually from its profits. If you own shares in a company that pays dividends, you'll receive regular cash payments — typically quarterly or semi-annually.
In New Zealand, dividends often come with 'imputation credits' (also called franking credits). These represent tax the company has already paid on the profits used for dividends. The imputation credits reduce the tax you owe on the dividend income, avoiding double taxation.
Some NZ investors build portfolios focused on dividend-paying companies (like Contact Energy, Spark, or Auckland Airport) for regular income, while others prefer growth stocks that reinvest profits instead of paying dividends.
Why this matters
Dividends can provide a regular income stream from your investments, which is particularly valuable in retirement. Understanding imputation credits is important for NZ investors because they affect your actual after-tax return. If you're investing in NZ shares, the imputation system generally makes NZ dividend stocks more tax-efficient than international ones.
Related Investing terms
ETF (Exchange-Traded Fund)
A type of investment fund that trades on the stock exchange. Holds a basket of shares, bonds, or other assets. Popular in NZ via platforms like Sharesies, InvestNow, and Hatch.
Managed Fund
An investment fund run by a professional fund manager who decides what to buy/sell. You invest money and the manager does the rest. Higher fees than index funds but potentially higher returns.
Index Fund
A type of fund that tracks a market index (like the NZX 50 or S&P 500) rather than trying to beat it. Lower fees than managed funds. Warren Buffett's recommended approach for most people.
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