What are gross dividends?

A gross dividend is the total dividend paid, including capital-gains distributions and non-taxable distributions, without subtracting taxes, fees and other expenses. Gross dividends stand in contrast to net dividends.

An exploration of gross dividends

Let’s take the case of American investors. Gross dividends paid to them are reported on the US Internal Revenue Service (IRS) FORM 1099-DIV. Ordinary dividends are reported on Box 1a. Unless a dividend is classified as a qualified dividend, it’s considered ordinary. Box 1b is for reporting qualified dividends, and may consider capital gain rate reductions. Non-dividend distributions are reported in Box 3.

A 1099-DIV is sent to any investor who has received dividends, including capital gain and exempt-interest dividends, and other distributions on a stock of $10 or more, or if they hold funds that require paying foreign tax on dividends and other distributions in that given year.

There are many countries where income derived from dividends is considered at a more favourable tax rate than average income. 

Example of a gross dividend

Let’s consider that Company ABCD has decided to provide a dividend of $1 to its shareholders and you hold 500 shares of ABCD. In the US, companies generally pay quarterly dividends, while non-U.S. companies typically pay annual or semi-annual dividends.

You will receive a payment of $500 in gross dividends for the number of shares you hold. However, calculations are different when it comes to net dividends. 

In the case of ordinary dividends, you will have to consider tax at a rate of 35%, and fees and expenses at 2%. The net dividend will be $315. If it is a qualified dividend, with a reduced tax rate of 15%, then the net dividend would be $415.