Do Dividends Go Straight to Your Bank Account? -

So, you own some stock and you’ve got a notice you’ll be receiving a dividend payment soon. While this is cause to celebrate, you’re left wondering how you’ll get that money. Will it come to you by mail or be sent electronically to your bank account?

Most companies and brokerage firms will send dividend payments by check. You’ll receive that check by mail. However, some brokerage firms let you choose to have any dividends go straight to your bank account.

Let’s get into the nitty-gritty of dividend payments and how to have them sent electronically to a checking or savings account.

Do Dividends Go Straight to Your Bank Account?

Not usually. Companies decide to pay out dividends to eligible shareholders when there are excess earnings. However, some firms choose to pay out dividends in the form of additional shares.

So, let’s say Heinz Company declares a dividend of $2.00 a share for all common stockholders. Instead of paying that out in cash, Heinz decides to issue its common stockholders $2.00 in additional company stock equal to the declared dividend.

Your mutual fund or brokerage account will then get those additional shares. No cash exchange takes place. In the instances where a company declares a cash dividend, those payments are typically sent via a paper check.

For example, Hershey’s declares a cash dividend of $5.00 a share. You own 1,000 shares in the company. The firm prints and sends you a check for $5,000 that you receive in the mail four weeks after Hershey’s declares the dividend.

How To Have Dividends Go Straight to Your Bank Account

You can arrange to have cash dividend payouts go straight to your bank account. You can work with the company’s stock transfer agent to set up a direct deposit. You’ll have to exchange your bank information, including routing and account numbers.

You’ll also have to authorize the transfer. Keep in mind that this only works for cash dividend declarations. Reinvestments in the company’s stock will not pay out in a cash deposit to your bank, even if you have an ACH authorization on file.

You should also check with the company or fund you have stock in. See if they have the means to set up an ACH or direct deposit authorization for cash dividends. Also, find out if there is a deadline to submit the authorization before the next cash dividend.

When Do Companies Declare Dividends?

Most companies decide to issue dividends after income statements become finalized. This typically happens between the company’s executive leadership and its board of directors. Income statements become finalized on a quarterly and annual basis.

That said, organizations do operate under different fiscal years. Some may have fiscal years that follow the calendar year. So, January through December represents a fiscal year.

The company’s annual financial statement might become finalized for the previous year on January 2nd or 3rd. Quarterly statements typically follow the standard schedule, with each quarter divided into three consecutive months.

Here’s a breakdown of the quarterly system and schedule:

First-quarter earnings: January through March
Second-quarter earnings: April through June
Third-quarter earnings: July through September
Fourth-quarter earnings: October through December

Which Shareholders Receive Dividends?

You have to be an active shareholder on or before the declaration date. If you buy the company’s stock after the date and time of declaration, you are not eligible. This is why it can literally pay to hold onto your shares that have a history of paying out dividends.

Before you buy stock in a company, you can research how many times they’ve declared dividends. You can also find out the average payouts per share and whether those were in cash or additional stock.

Another thing to check is whether preferred or common shareholders typically get dividends. Some companies only pay out dividends to preferred shareholders. Look at the average dividends per share and determine whether this is important to you.

Some shareholders don’t mind not receiving dividends. They’re more interested in growing or appreciating the value of their shares. Others rely on dividend income in retirement to supplement other sources, such as a pension or 401(k).

Are Dividend Payments Taxable?

All dividend payouts are taxable, according to the IRS. This includes cash and stock dividend payments. When you file your annual income taxes, you’ll want to include dividend payment amounts as part of your income.

When dividends go directly into your bank account, that’s a record you received these payments. However, you should also receive an account statement from the company that issued the dividend payments.

Regardless, keep meticulous records so you don’t underreport your taxable income. If you receive additional stock shares as a dividend payment, the process may not be as straightforward. Consult with a tax professional and IRS publications for guidance.

Can You Refuse a Dividend Payment?

You generally can’t refuse a dividend payment if you’re a shareholder that’s entitled to it. However, you can choose to donate your dividend payments once you receive them. This is obviously easier to do with cash payouts.

You’ll still have to declare the payments as income. But you can also indicate you donated a certain amount to eligible charities and non-profit organizations. This is a way to reduce your income tax burden.

Before you do this, check the annual limits on cash donations. If you’re going to get a cash dividend that exceeds the IRS’s donation limits, it’s better to only donate up to the limit.

Final Thoughts

Do dividends go straight to your bank account? It depends and you’re usually required to set up a direct deposit authorization. Otherwise, you’ll receive a check in the mail. Keep in mind this only happens with cash dividends.

Companies can choose to pay out dividends in the form of additional shares of stock. In these cases, those shares go into your brokerage account or dividend reinvestment plan. All dividends are taxable income, regardless of form.

Before you invest, decide on an investment strategy and whether dividend payments are important to you.

Do Dividends Go Straight to Your Bank Account?