How are dividends treated if you hold shares through a spread bet or CFD?

If you hold a long CFD, you will be credited the value of the dividend on the ex-dividend date. If you hold a short CFD, you will be debited the dividend on the ex-dividend date. Likewise for spread betting.

Do I have voting rights on the underlying stock?

No. CFDs and spread bets do not entitle you to any rights.

Dividends and Spread Betting

So if you are hanging dangerously close to your stop loss prior to an ex-div date be prepared to say goodbye to your bet.

On Wednesday the 14th April a number of stocks go ex-dividend. One of these stocks is Tullow Oil (LON:TLW) – a company I have a long spread bet on.

So what can someone who has taken a spread bet on Tullow Oil expect in the event of the stocks ex-div date?

Initially – in my early spread betting days – I was unaware of the falls in share prices associated with companies going ex-div. However it is of course an integral part of the stock market.

Fortunately the spread betting providers have taken into account the trauma such falls in stock prices can present their clients and have, in response, set up a system of re-imbursing clients in such inevitabilities.

This is how IG handles stocks that have gone ex-div:

“When a Daily Shares bet rolls over to the next period the original position is closed and a new position is opened on your account with an adjusted opening level to reflect the rollover charge.

“Once a company has declared a dividend the market generally adjusts down its share price from the day that it is first quoted ex-dividend. For a rollover on a daily shares bet we will account for this by posting a cash amendment to your account.

“If you have bought to open the dividend adjustment will be credited to your account and it will generally equal the dividend that would be received by a UK taxpayer holding the equivalent position in the underlying financial instruments (Net dividend).”

Note that while the provider will refund your balance they won’t stop you being stopped out.

So if you are hanging dangerously close to your stop loss prior to an ex-div date be prepared to say goodbye to your bet.

But – importantly – the practice of replenishing your balance by the value of the dividend payment suggests that spread betting providers are ultimately more interested in seeing their clients maintain open positions – that way they can chip away at your margins  everytime you roll a position.