Contracts for difference

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7. Dividends

The final element in the cost structure of CFD trading is the treatment of dividends.

You might think that, since the CFD trader never actually owns the underlying shares, dividends would be completely irrelevant, but that isn't the case: CFD accounts include cash adjustments to reflect dividend payments.

• Holders of long CFDs are paid a proportion (usually 80%) of the net dividend declared by the company.
• Holders of short CFDs have to pay the gross dividend.

The payments are made on the ex-dividend date because, other things being equal, the share (and so the CFD price) would be expected to fall by the amount of the declared dividend per share on that date.

Note that the dividend debits and credits are made by your broker to your CFD account, not by the company. They are cash adjustments to reflect corporate actions affecting the underlying share. Bonus issues, rights issues and splits are replicated in the CFD in the same way.

1. What are CFDs? 2. The benefits of CFDs 3. Initial margin 4. Variation margin 5. Commission costs 6. Interest payments 7. Dividends 8. Example of a long and short trade 9. Comparison of CFDs to share investing 10. Comparison of CFD trading to spread betting 11. Types of order 12. Stop losses 13. Strategies: Pairs trading 14. Strategies: Hedging an equity portfolio 15. Opening an account with a broker 16. Conclusion

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