What are Dividends in Stock Trading?

Problem no dey finish, and it’s always nice to have an extra way of making money. In simple words, dividends in stock trading are another way to earn passively in Nigeria. But the bigger question is, what are dividends in stock trading?

Today, I will explain what dividends are and why they matter in stock trading. If you have ever wondered why some investors get paid just for holding certain stocks, the answer is dividends. By the end, you will see why smart traders pay attention to stock prices and much more, the dividends behind them.

Let’s go in.

What Are Dividends?

Dividends are payments made by a company to its shareholders. They are rewards for investing in and owning part of the business.

When a company makes a profit, it can either reinvest that money back into the business for growth or share a portion of it with its investors in the form of dividends. Dividends can be paid in cash (the most common type) or stock (additional shares).

Fig. 1 – Top 3 Investments for Nigerians in 2025.

Cash dividends are usually deposited directly into your brokerage account, while stock dividends increase the number of shares you own without you having to buy more. However, not all companies pay dividends, as most new organizations prefer to reinvest their money.

How Dividends Work

Every company that pays dividends follows a specific schedule that determines who qualifies to receive them;

Declaration Date

This is the date on which a company officially announces it will pay a dividend. The board of directors sets the amount per share, the payment date, and the record date. Once this announcement is made, the company becomes obligated to pay its shareholders.

Record Date

This is the cutoff date set by the company. Only investors who are listed as shareholders on this date will receive the dividend. Hence, if you buy the stock after the record date, you won’t be eligible for that particular payout.

Ex-Dividend Date

This is one of the most important dates for traders. It’s usually one business day before the record date. If you buy a stock on or after the ex-dividend date, you won’t receive the upcoming dividend. To qualify, you must own the stock before this date.

Payment Date

This is the day when the company actually distributes the dividend by depositing cash into your account or issuing new shares.

See example below:

Let’s say a company declares a ₦2 dividend per share on March 1, sets the record date as March 10, and the payment date as March 20.
If you own 1,000 shares before the ex-dividend date (March 9), you will receive ₦2,000 in dividends on March 20.

Why Dividends Matter to Investors

Much more than being a payout, Dividends are actually a powerful part of long-term investing. Here’s why they matter.

Steady Source of Income

For many investors, dividends serve as consistent income. It’s almost like earning a salary from your investments. It is often one of the retirement plans for retirees seeking stability or an active trader reinvesting profits. Dividend payments can provide a dependable cash flow even when stock prices fluctuate.

Fig. 2 – All You Need to Know About Stock Trading As A Nigerian (Part 1).

Signal of Financial Health

When a company pays dividends regularly, it’s a strong sign of financial stability and confidence. It shows the company is generating enough profit to fund operations and reward its shareholders.

Protection During Market Downturns

Even when stock prices fall, dividend-paying stocks can soften the blow. You still earn income regardless of price swings, which helps balance risk and maintain returns during volatile market periods.

Long-Term Growth Through Reinvestment

If you reinvest your dividends, you can accelerate portfolio growth. Reinvested dividends buy more shares, which in turn generate more dividends and create a compounding effect over time.

Reward for Loyalty

Dividends reward investors who stay invested for the long haul. Companies that pay consistent dividends often attract serious investors who value stability.

How to Receive Dividends in Nigeria

If you own shares in a Nigerian company listed on the Nigerian Exchange, you are entitled to dividends whenever the company declares them. However, here is how to receive dividends in Nigeria:

Own Shares in a Dividend-Paying Company

First, you must own shares in a company that pays dividends. This can be done by buying directly via your stockbroker or receiving shares. It is important to note that only shareholders listed in the company’s register as of the “qualification date” will receive dividends.

Fig. 3 – All You Need to Know About Stock Trading As A Nigerian (Part 2).

Complete Your E-Dividend Mandate

In the past, dividends were paid by cheque (warrants), but now the process is fully digital. To receive your dividends directly into your bank account, you must complete an e-dividend mandate form through your registrar or your bank.

You will need to provide:

Your full name (as it appears on your stock certificate)
Bank name and account number
BVN (Bank Verification Number)
Valid ID
Central Securities Clearing System (CSCS) number or Clearing House Number (CHN)

Once approved, all your future dividends will be paid electronically to your bank account.

Identify Your Company’s Registrar

Each listed company on the NGX has a financial firm responsible for handling shareholder records and dividend payments. You can check the company’s website to find out who the registrar is, then visit their website to fill out the e-dividend form online.

Claim Unpaid Dividends

If you have missed past dividends, you can still claim them. Registrars usually have an “Unclaimed Dividend Portal” where you can search by name or shareholder number and submit a claim.

Reinvest or Withdraw Your Dividends

Once received, you can decide to:

Withdraw the funds into your bank account.
Reinvest by purchasing more shares, which increases your future dividend earnings.

Frequently Asked Questions About Dividends in Stock Trading

Here are the frequently asked questions about dividends in stock trading;

Question 1: How often are dividends paid?

Dividends are usually paid quarterly, twice a year, or annually, depending on the company’s dividend policy. In Nigeria, many companies pay interim dividends (mid-year) and final dividends (after the financial year).

Question 2: Can I receive dividends without owning shares?

No, you cannot. Only registered shareholders listed on the company’s record before the qualification date are eligible for dividend payments. To receive dividends, you must buy and hold shares before that date.

Question 3: Do all companies pay dividends?

No, not all companies pay dividends. Some companies reinvest their profits into expansion instead of paying shareholders.

Question 4: What’s the difference between dividend yield and payout ratio?

Dividend yield shows how much a company pays in dividends each year compared to its share price. It’s a quick way to measure how much return you’re getting from dividends.

Question 5: Are dividends taxable in Nigeria?

Yes, dividends are subject to 10% withholding tax in Nigeria. This tax is automatically deducted before you receive your dividend payment, so there’s no extra filing required on your part. What you get in your bank account or trading wallet is the net dividend after tax.

Conclusion

Dividends may look small at first, but over time, they can make a big difference in your financial journey. They are proof that your money is working for you.

In Nigeria, all it takes is owning the right shares, completing your e-dividend mandate, and keeping your records up to date. From there, your dividend earnings can become a reliable source of passive income.

So, the next time you hear about investors earning while they sleep, know that it’s the power of dividends.

If you enjoyed this, read more here;

All You Need to Know About Stock Trading As A Nigerian (Part 1).

All You Need to Know About Stock Trading As A Nigerian (Part 2).

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