The dividend yield is equal to the annual dividends per share divided by the share price.
Dividends are the simplest way for companies to return the surplus cash on their books to their shareholders. Since the end of 2007, cash balances on Canadian corporate balance sheets have risen 18 percent. At the end of October 2010, "The Globe & Mail" reports that companies were sitting on $340 billion in cash and short-term deposits. Excess cash could mean more dividend payouts for shareholders. However, it could also mean that corporations are being conservative because, from their experiences during the 2008 recession, they know what happens when financial institutions stop extending credit. Corporations can pay dividends in cash or in stock.
Instructions
1. Pay dividends in cash. This simplifies matters for the taxpayer because he can use Canada Revenue Agency (CRA) guidelines to determine the amount of taxes he owes, and whether or not he would be eligible for federal and provincial tax credits.
2. Pay dividends in stock. For taxation purposes, there's no difference between a stock and a cash dividend. The fair market value, which is usually the stock market price, is used to estimate the equivalent cash amount of the stock dividend. If the corporation has a stock dividend reinvestment program, where dividends are automatically reinvested in the company stock, then the equivalent amount of cash is used to calculate the taxable dividends.
3. Recognize the tax implications of a foreign corporation paying dividends to Canadian shareholders. Canadian taxpayers must first convert dividends received from a foreign corporation into Canadian dollars at the prevailing Bank of Canada exchange rate, and then must report it as income. In other words, they aren't eligible for the special tax treatment afforded to dividends from Canadian sources, and they're not eligible for federal or provincial tax credits. However, they may be eligible for a tax credit if they paid foreign taxes on their dividend income. They also may not have to declare it as income if the foreign dividend is in the form of a share in another corporation, as would be the case in a stock-based merger.
Tags: dividends cash, eligible federal, eligible federal provincial, federal provincial, federal provincial credits