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Dividends play a central role in many investment strategies. As profit shares from corporations, they provide investors with a reliable income source – even when stock prices fluctuate. In periods of very low interest rates, dividends have even been referred to as a replacement for traditional interest earnings. Swiss companies have developed a strong dividend culture in recent years: in 2024, around 85% of Swiss listed companies either increased or at least maintained their dividend.
In this guide, you’ll learn what dividends are, how they work, and what you, as an investor in Switzerland, should be aware of.
Table of Contents
What are dividends?
A dividend is the portion of a company’s profit that is paid out to its shareholders. Through dividends, companies share their success with their investors.
Important to note: There is no obligation to pay dividends. Whether or how much is paid out is decided at the annual general meeting. The board proposes a dividend, which shareholders then vote on. If a dividend is approved, it is usually paid once a year in Switzerland, often immediately after the AGM.
A key distinction when it comes to stock returns is dividend vs. capital gain: while dividends represent a direct payout of profits, capital gains arise when you sell a stock for a higher price than you bought it. Both forms of returns contribute to the total return of a stock – dividends provide regular income, while capital gains depend on the stock’s value increase.
In practice, there are various types of dividend payments:
Cash dividend: The most common form is a cash payout of the dividend. Shareholders receive a specific amount in CHF per share credited to their account.
Stock dividend: Instead of cash, the company can pay out the dividend in the form of additional shares. Shareholders receive free shares of equivalent value, increasing their stake in the company.
In-kind dividend: Some companies distribute goods or tangible assets, such as products manufactured by the company, vouchers, or shares of subsidiaries. In-kind dividends are relatively rare and usually reserved for special cases.
Special dividend: In addition to the regular payout, a special dividend may be paid if a company has made exceptionally high profits or sale proceeds. These one-off extras increase the payout for the year but are not to be expected regularly.
Regardless of the type of dividend, it is a voluntary payment from the company to the shareholders. In economically difficult times, dividends may be reduced or suspended.
How and when are dividends paid?
In Switzerland, most listed companies pay their dividend once a year, typically shortly after the AGM in spring.
In other markets – such as the USA or the UK – it is common for dividends to be paid quarterly (four times a year). Some European companies practice semi-annual dividends (interim and final dividends). The exact payout date is announced by the company. Investors automatically receive the dividend credited to the cash account of their portfolio without needing to take any action.
The eligibility for the dividend is determined by the so-called ex-dividend date (Ex-day). The ex-day is the first trading day on which the stock is traded without the dividend entitlement. Specifically, this means: if you want to receive the dividend, you must buy the stock before the ex-dividend date (usually no later than the last trading day before the ex-day). From the ex-day onwards, the stock price typically drops by approximately the dividend amount, as new buyers no longer have the right to the distributed dividend.
For investors, the dividend yield is an important metric to compare dividends relative to the stock price.
Calculation: Dividend yield = (Annual dividend per share / Share price) × 100%.
Here’s an example: If a company pays a dividend of 3 CHF per share and the current share price is 100 CHF, the dividend yield is 3%.
The dividend yield indicates what percentage of your stock investment you get back as an annual payout. It allows for comparison between different stocks. However, a notably high dividend yield may also be a warning signal: it often results from a sharply fallen stock price or a very high payout ratio, which may not be sustainable from the profits. In such cases, dividend cuts could be expected in the future.
Tax treatment of dividends in Switzerland
In Switzerland, dividend distributions from domestic companies are subject to withholding tax, which is 35%. This amount is deducted directly by the distributing company or the custodian bank and paid to the Federal Tax Administration.
As a Swiss private investor, you'll first notice that only 65% of the gross dividend is credited to your account – the remaining 35% is withheld by the government. This withholding tax serves as a safeguard against tax evasion. The good news is that if you correctly declare your dividend income in your tax return (in the securities register), you can receive the full 35% withholding tax back. In practice, the withheld tax is either offset against your cantonal income tax or refunded.
Swiss private investors are ultimately taxed on dividends as income at their personal tax rate.
If you invest in foreign stocks, foreign withholding tax often applies. Many countries impose a withholding tax on dividend payments to foreign investors (e.g., 15% in the US), which is deducted directly from the amount. However, thanks to double taxation agreements, Swiss investors can often apply for a credit or refund of this foreign tax.
A major advantage for Swiss private investors is that capital gains are usually tax-free, provided you are not considered a professional securities trader. Dividends, however, as mentioned, are subject to income tax, which may make a dividend strategy less attractive from a tax perspective.
However, there are also tax-free dividend payouts: Many Swiss companies have so-called capital reserve accounts (KER). Payments from these reserves are not considered taxable income. Such payouts from premium or capital contributions are tax-free for private investors under certain conditions. These tax-free amounts are separately indicated on your dividend statement. However, note that even tax-free dividends must be declared in your tax return (they increase your wealth, but not your income).
Tips for investing in high-dividend stocks
Dividends are not equally suitable for all investors. Their role in your portfolio strongly depends on your individual investment strategy and life situation. If you focus on dividends, you should not consider them in isolation, but as part of an overarching, balanced strategy. Still, there are a few basic elements that can help when evaluating high-dividend stocks:
Realistically assess the dividend yield: Pay attention to the dividend yield, but don't be dazzled by extremely high percentages. A solid dividend yield (e.g., 2-5%) can indicate a healthy company, while excessively high yields often result from price declines or overly generous payouts. Always check why a stock offers such high returns – if in doubt, a future dividend cut could be looming.
Check the payout ratio: The payout ratio indicates what percentage of a company's annual profit is distributed as dividends to shareholders. Review the company's historical payout ratio in financial reports or on financial platforms.
Consider the dividend history: Looking at a company's dividend history shows how reliable and growth-oriented its dividend policy is. Companies with a long history of steady or increasing dividends enjoy trust among many investors. These companies – often called dividend aristocrats – are typically resilient during crises and have solid business foundations. Therefore, pay attention to how the company has performed in the past.
Don’t forget diversification: Don’t put all your eggs in one basket; diversify your portfolio. A classic trap for pure dividend hunters is focusing on a few sectors – such as utilities, telecommunications, or real estate – that traditionally offer high dividends. However, an overly concentrated portfolio can be vulnerable. It's better to diversify across various sectors and regions, even if this means including stocks with slightly lower dividend yields.
A dividend strategy must fit your personal investor profile. Consider whether you need the payouts as income (e.g., to supplement your salary or pension) or whether you want to reinvest them to benefit from compounding.
Conclusion: Dividends as part of a long-term strategy
Dividends can make up a significant portion of the total return from stocks over long periods. Especially in markets with lower growth rates or higher volatility, they provide stability.
In Switzerland, tax regulations and company-specific factors like payout policies and industry affiliation affect the significance of dividends. Looking at the history and regularity of payouts can help you better position individual stocks in your portfolio.
Are you interested in dividend stocks but don’t know where to start? Book a free consultation with an Alpian Wealth Advisor today.
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