Dividends From US Stocks - Complete Guide

What Are Dividends?

A dividend is a share of a company's profits that it pays out to its shareholders as a benefit of owning its stock. You can think of dividends as a reward from companies to their shareholders. When a company makes profits, it has two choices: One to reinvest these profits to foster business, second to distribute a percentage of these profits to their shareholders in the form of dividends. 

For example, say you invested in a US Stock: consider Coca-Cola. Now, in 2024, Coca-Cola announced a total dividend of 1.94 USD per share. This means if you own 100 shares of Coca-Cola, you’re liable to receive $194 (100 x $1.94) in dividends. You can either get this $194 as a single annual payment or spread across quarterly payments.

Something to note here is that not all stocks pay dividends. Let’s understand how Indian investors can earn dividends from US Stocks, what the process looks like, taxation, tracking and more in this article.

How Do You Earn Dividends On US Stocks?

If you’re investing in dividend stocks in the US from India, you will receive dividends on these stocks. When you receive dividends from US Stocks they are credited to your wallet, unlike dividends from Indian stocks that are credited directly to your bank account. 

Companies have a fixed schedule of distributing these dividends to their shareholders, it can either be quarterly or annually. When investors receive dividends outside this fixed schedule, it’s known as a Special Dividend. The dividend amount to be distributed is decided based on the company's recent earnings. Dividends can either be paid in shares or as additional shares. 

To understand this better: Say, Johnson & Johnson distributed $4.91 per share in total Dividends in 2024. However, investors did not receive the entire amount in one-go. This was distributed across quarters. Say you have 100 shares of Johnson & Johnson, this is what the payout would look like: 

How To Choose US Stocks On The Basis Of Dividends?

Companies that pay dividends are attractive to investors seeking consistent returns. Dividends add to the returns gained on investments making dividend paying stocks lucrative for investors. Regular payouts boosts investor confidence and encourages share purchases.

However, one must note that all dividend paying companies do not have good returns or good financial health, that is why it is important to understand the overall financials of a company before investing in dividend stocks. 

Here’s a checklist of what you need to consider before choosing a dividend stock in the US:

1. Analyze Dividend Yield:

Dividend yield tells you what amount of dividend a stock will earn you annually for every dollar invested in that stock. The formula for calculating dividend yield is: 

Dividend yield = Annual dividend per share / Market price per share

It determines your return on investment solely on the basis of dividends. Let’s say, Apple distributed a total of 0.99 USD per share dividends. Apple’s share price is $229.87, so the dividend yield for Apple can be calculated as follow:

Apple’s Dividend yield = 0.99/229.87 = 0.43% 

This 0.43% indicates that as an investor you can expect to earn 0.43% solely from dividends apart from the returns that will come after stock appreciation. 

However, dividend yield alone cannot determine if the stock is a good investment. A high dividend yield might seem like a good investment at first glance, but it can sometimes result from a declining stock price. 

For example, if a company’s stock price drops due to poor financial performance, its dividend yield will increase. However, this does not necessarily make the stock a good investment, as the company may face challenges sustaining the dividend payouts.

Investors should therefore analyze the dividend yield alongside other factors, such as, payout ratio, dividend growth history, to make a well-rounded investment decision.

2. Check Payout Ratio:

A payout ratio tells you what percentage of profits are given to shareholders in the form of dividends. In simple terms, it reflects the percentage of a company's earnings that are paid out in the form of dividends. The formula for calculating payout ratio is:

Payout Ratio = Dividends paid per share (DPS) /Earnings per share (EPS)

For example, the EPS (Earning Per Share) of PepsiCo in 2023 was $6.56. The company distributed a total dividend of $4.96 per share in the same year.

Payout Ratio = (4.96/6.56) * 100 = 75.61

Some companies payout their entire profits in dividends resulting in a 100% payout ratio and some retain their entire profit for business growth leading to 0% payout ratio. Companies that have very high payout ratios (Above 100%) are also not considered reliable since they paid out more in dividends than they earned. 

These companies will often be forced to reduce or cut down dividends to re-invest money back in business. While companies that have moderate payout ratios reflect that companies have financial stability and are offering steady dividend payouts to their shareholders.

3. Review Dividend History:

Dividends are a reflection of a company’s financial performance. Consistent dividend payouts over the years signal investors that the company is earning enough profits that a part of it can be distributed as Dividends to its shareholders.

For example, companies like McDonald’s, Estee Lauder, Nvidia, etc have consistently distributed Dividends to their shareholders over the last 10 years.

4. Check Dividend Growth:

Apart from reviewing consistency in dividends, Investors must also check if there's a significant increase in dividend payouts. Consistent dividends indicate that the company generated enough profits to increase dividends.
For example, Microsoft has consistently increased their annual Dividends by 10% over the last 5 years. 

When Should I Invest In A Stock To Get Dividends?

Shareholders are eligible to receive dividends from a company if they hold their shares 1 business day prior to the ex-dividend date. So, if you buy the stocks of a US company on the ex-dividend date you’ll not be eligible for dividends in that distribution cycle.

Shareholders can get dividends if they own shares one day before the ex-dividend date .This date can be considered as a date on which the eligibility to receive dividends for that cycle expires (We will explain this in the following section).

What Is The Process Of Receiving Dividends?

Companies follow a fixed schedule with their dividend payments. If you invest in US Stocks you must understand these dates and their implications: 

• Announcement Date: As the name suggests, the Announcement date is the date on which the company announces or declares Dividends.
• Ex-dividend Date: Ex-dividend date or the Ex-date is the date on which the eligibility for shareholders to receive dividends expires. In simple words, if you buy the stock of a company on or after the ex-dividend date you’ll not be eligible to receive dividends in that cycle.
• Record Date: The record date, also known as the cut-off date is the date on which companies decide which shareholders are eligible to receive dividends. The record date is usually 1 trading day after the ex-dividend date.
• Payment Date: Lastly, the payment date is the date on which the dividends are credited to the shareholders’ bank account. Depending on the company, this can be anywhere from 1 week to 30 days from the record date.

Let’s understand this with an example of Company X.

In the example below, Company X announced its dividends on 2nd January, and their Ex-dividend Date was 22nd January, which was a Monday. To be eligible for Dividends, you need to purchase the shares of Company X on 19th January, which is one trading day prior to the Ex-dividend date (20th & 21st fell on a weekend).

How Can I Track Dividends From US Stocks?

You can easily track all your US stocks dividends on the INDmoney app. We have created a special widget on the app to help you track all your dividends at any time. Why was this necessary?

Indian investors in U.S. stocks often enjoy the benefit of earning dividends in dollars. However, the challenge of tracking these earnings can be frustrating. 

Dividend payments are typically communicated via 'Dividend Intimation' emails, and while the funds are credited to their US Stock account wallet, there’s no straightforward way to view these payments without sifting through multiple emails.

To address this issue, we've introduced a Dividend Calendar for US stocks. You can now get a clear, calendar-view of your dividend earnings. Sort your dividends by month or year and see a detailed breakdown by stock all in a single view. 

To track your dividends on the INDmoney app, follow the steps listed below:

• Head to your US Stocks dashboard and look beneath your total US stocks portfolio
• Click on the ‘Dividend Calendar’ banner. This will launch your dividend calendar
• From here you can view your total dividend payout on a calendar view
• You can toggle between a monthly or yearly view of your dividend earnings
• You can also click on a particular month’s earnings to get a stock-wise breakdown

How Are Dividends From US Stocks Taxed In India?

When an Indian investor earns dividends from a US company, they are subject to a 25% withholding tax on the dividend amount. This means if you receive $100 as dividends from Apple, only $75 will be credited to your US stock account after deducting the $25 withholding tax.

However, this $25 can be claimed back under certain conditions. To do this, the investor must fill out Form 67 when filing their income tax return in India. The individual will be taxed on their US dividends at their applicable marginal tax rate in India.

How Does Double Taxation Avoidance Agreement (DTAA) Affect Dividends From U.S. Stocks?

Double Taxation Avoidance Agreement (DTAA)  is a treaty signed between two countries. This is created to protect Non-residents who earn from investing or doing business in a foreign country from paying double tax on their income.

Say, you invested in the US and earned dividends. Now you’re liable to pay a 25% withholding tax in the US and report this dividend income in India, which is then taxed at marginal rates. 

Thankfully, since India and the US have a DTAA. investors can avoid paying taxes twice on the same income. Under the treaty, you can claim a tax credit for the amount already withheld in the U.S., which reduces your Indian tax liability by the same amount. 

Does Appreciation In Currency Affect My Dividends?

When the currency exchange rate appreciates, it means the Indian Rupee has strengthened against the dollar. For example, if the currency exchange rate changes from ₹80 to ₹75, it means you now have to pay 5 less Indian rupee to get $1. Adversely, this also means you get less INR when you convert your dollar to rupee.

To understand this in the context of Dividends, say you earned $100 Dividends from Microsoft. When this dividend was paid out in your US Stock Account, the currency exchange rate was ₹80. Which means had you withdrawn on the same day, you'd have received ₹8000 ($100*80) in dividends.

Say you decided to withdraw this amount a month later, when the currency exchange rate had fluctuated to ₹75. You’d now receive ₹7500 ($100*75) in Dividends. This amount is 6.25% less than the amount you’d have received had the currency not been appreciated.

To understand currency exchange rates and its impact on your US investments, read this article here.

How Do I Get Dividends From My US Stocks Account To My Bank Account?

Dividends from US Stocks are credited to your US Stocks Account. You then have to withdraw this amount into your bank account. This is when the process of converting your Dollars into INR takes place. 

If you invest in US Stocks with INDmoney, we take you through a simple process to withdraw your money to your bank account.

1. First, head to your US Stocks dashboard. Navigate to the ‘Wallet’ or ‘Manage’ tab. 
2. Click on ‘Withdraw’. Enter withdrawal amount. View and confirm.
3. Once processed, funds will be transferred to your Indian bank through the SWIFT system.  

4. Dividends will reflect in your Indian bank account within 3-5 days.

Note: The currency exchange from USD to INR is handled by the receiving bank and the exchange rate applied is based on the rate on the day the funds are received to the bank.

Questions and Answers about Tracking Dividends from US Stocks