This is a common misconception. Spread betting does account for dividends in both future and rolling contracts. Holders of long spread betting positions benefit from the equivalent of dividend credits via an adjustment in the quoted price of the spread bet on close of business the day before the stock ex-dividend date.
You also get dividend credits on rolling spread bets, albeit at a slightly reduced rate. For instance, if a company like Tesco issues a dividends to its shareholders, spread betting companies will credit a corresponding dividend to their customers who are long Tesco. In fact such dividends are credited much quicker in your spread betting account (as soon as the stock goes ex-dividend) unlike those in your share dealing account which may take up to 2 months for you to receive.
Alternatively, though, if a spread trader is short a spreadbet, the trader will pay the dividend out of their account. Depending on your spread betting provider, they may result in a fee in addition to what you owe if you are short, or take part of the dividends if you are long.
“We have it too easy with dividends nowadays whether holding shares via a spreadbet or physical. Some of us can remember when all shareholdings were in paper certificate form, dividends arrived in the post as a cheque (exciting!) and to sell a share took a phone call followed by 3 postal transactions. They sent you the contract note; you sent them the share certificate; then they sent you the cheque (at the end of the month I seem to remember)”
Dividend / Corporate Action Adjustment Examples
Spread betting providers will make an adjustment on your account if you hold a position in a stock or index when it goes ex-dividend. At present UK equities and Indices go ex-dividend on Wednesday; therefore your account will be affected if you hold open positions in the relevant market at the close of the underlying exchange on Tuesday. Other countries may go ex-dividend on other days of the week so please call the spread betting provider’s if you need further information.
Let’s take an example of how your account will be adjusted if you have bought a share with a spread betting firm that goes ex-dividend:
ABC limited has declared that they are paying a 4p dividend.
At the close of the market (4.30pm) on Tuesday you have a £5 buy trade open of ABC Limited and so you will receive a credit on your account for 90% of the dividend that ABC Limited are paying.
As a £5 spread trade is equivalent to 500 shares, the adjustment is calculated as follows:
500 x £0.036 = £18 credit paid to your account.
Please see below an example of how your account will be adjusted if you have sold a share with a spread betting firm that goes ex-dividend:
XYZ Limited has declared that they are paying a 6p dividend.
At the close of the market (4.30pm) on Tuesday you have a £4 sell trade open of ABC limited and so you will see a debit on your account as you are being charged 90% of the dividend they are paying.
As a £4 spread trade is equivalent to 400 shares, the adjustment is calculated as follows:
400 x £0.054 = £21.60 deducted from your account.
Corporate Action Adjustment
For corporate actions, the spread betting firm will replicate what has happened in the underlying stock. Both buy and sell positions will be affected.
Note that in practice spread betting providers will credit you 80% to 90% of the gross dividend for long positions (providers have slightly different policies on dividends), while the dividend adjustment for short positions usually amounts to 100% of the gross dividend; the difference is because of UK tax laws (as otherwise investors would use spread bets to avoid tax on dividend income). Incidentally, one advantage that spread traders have over share investors is that they stand to receive the dividend on the ex-dividend date, while share investors of the underlying stock may only receive the dividend credit on the pay date, which can be several months after the ex-dividend date.
Having said that, spread bets are best-suited for active traders, and hence rollover and dividends are of significantly less concern.