Zakat Question: Dividend Investment

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#1

Assalamwalekum to all,
I am a dividend investor which means I buy shares but I rarely sell any shares and keep earning the dividends.
My question is how to calculate zakar on these type of investment.

I know I will have to pay full Zakat on the dividends I have received but how to calculate Zakat on the principle amount that I have invested.

Suppose, if I have invested $100,000 in the stock market with the intention in earn dividends only, then do I have to pay Zakat on the invested amount + the dividend received? or just on the dividends?

Secondly, is it permissible to invest in defense stocks. There’s a company in my country that creates warship and supplies them to the Navy, are we suppose to invest in those stocks?

Thanks in advance.

#2

Wasalam

May Allah bless you.
As you said you will pay zakat on the residual dividens you have on your zakat anniversary date.

You don’t pay zakat on the initial investment amount, however, you will also pay zakat on the zakatable asset of the company.
An easy process for this would be, to pay zakat on 25% of the market value of the shares, on the zakat anniversary day.

And Allah knows best!

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#3

Assalam wa alaykom,

I am not entirely sure this is correct. Zakat is payable on money you “own” whether that be in investments or not (you own a part of what the company has offered you to own).

Technically, that $100,000 can be liquidated tomorrow and you would now be in possession of the money thus putting you in the same liability group as if you already owned the money in the bank.

I would personally take the safer approach and pay the Zakat on the wealth you have been blessed with whether that be money in the bank or money from investments or from dividends.

And Allah knows best.

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#4

Barakallah fik.

Of course, if you wish to be on the safe side, you should pay on all assets you “own”. Even the houses we own and live in can also be subjected to zakat. This is also the opinion of some scholars. Because today’s houses are seen as investments that we “own”, with the hope it will accrue in value to be liquidated later on.

Also, extra zakat is rewarded and not an act of sin, so if your heart tells you to pay zakat on the entire value of all shares you own, then you should absolutely do so.

And Allah knows best!

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#5

Salaams Mufti Bilal. I’m not clear on this point. Could you clarify if you do or do not have to pay zakaat on dividend investments

#6

Wasalam

May Allah bless you.

  1. When you buy shares for dividend purposes, you will pay zakat on the residual dividend amount that you have on your zakat day.
  2. You will also have to pay zakat on the zakatable assets of the company according to the percentage of ownership that you have. If you can’t do this calculation, then pay zakat on 25% of the share value that you hold.

And Allah knows best!