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What is the difference between capital gains and dividends?



Our response:

There are three basic ways to make money on investments:

  1. Interest – Investments like savings accounts, GICs and bonds pay interest. With these types of investments, you generally know exactly how much money you’re going to earn on your investment.
  2. Dividends – Some stocks pay dividends, which give investors a share of what the company makes. You get a regular income from these investments. The amount of the dividend depends on how well the company did that year and what type of stock you own.
  3. Capital gains – As an investor, if you sell an investment like a stock, bond, mutual fund or ETF, for more than you paid for it, you’ll have a capital gain. If you sell it for less than you paid for it, you’ll have a capital loss.

The type of return you receive affects the tax treatment of your investments. Speak to a registered financial advisor or accountant to determine the types of return that best suit your investing goals and personal financial situation.

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