Regular income from investments: three sources explained

Regular income from investments comes from three sources: dividends, interest and option premiums. Each is paid by someone different, and none of the payments is secure by itself.

This article shows where the money comes from, what happens to the share price and how the three types of income behave in different market phases. The numerical examples marked «fictitious» or «illustration» are freely chosen; two examples come from SIX. Data as of 24 September 2026.

Where does regular income from investments come from?

With a dividend, the general meeting decides whether anything is paid and how much. The amount and the dates follow from the resolution. Extraordinary dividends are decided by an extraordinary general meeting, interim dividends by the board of directors.

With interest, the payment depends on the contract. The borrower can be a state, a canton, a bank or a company. The nominal value is repaid at the end of the term, as long as the borrower remains solvent. In a default, payments may not be made or may be reduced. According to the SNB, the Swiss National Bank's policy rate (the central bank's interest rate) stood at 0% on 24 September 2026. It is not the coupon of a bond. How a bond's price moves when interest rates change is explained in the article on bond prices when interest rates rise.

With an option premium, the payer is whoever buys a right. The seller is called the option writer. The writer must deliver the share at the agreed price (strike price) if assigned, i.e. if the buyer exercises the right. If the writer already owns the shares, this is called a covered call. The writer keeps the premium whatever the outcome. The US options clearing house OCC (Options Clearing Corporation) names premium income as the main motive. What call, put and premium mean is explained in the article Options explained simply.

Why does the share price fall when the dividend is paid?

Four dates belong to every dividend:

• Declaration date: The company announces the amount, the form of payment and the dates.
• Record date: Whoever is registered at the close of trading on the previous day receives the payment.
• Ex-date: From this day there is no longer any entitlement. In Switzerland it is usually one trading day before the record date.
• Payment date: The credit follows days or weeks after the ex-date.

On the ex-date, the dividend no longer belongs to the share. SIX gives an example: if a share trades at CHF 10.00 and pays a CHF 0.50 dividend, it may open at around CHF 9.50 on the ex-date. «May» means the price drop is possible, but not certain.

A distribution therefore redistributes assets and does not create additional ones. This applies before taxes and costs. It should not be equated with total return (price change plus distributions).

What is guaranteed and what is not?

Interest is not secure either: it depends on the borrower's ability to pay. The premium is not free income: it pays for the obligation to deliver.

How does the income behave in different market phases?

A simple example shows the differences. It combines a share with a covered call, as described in the covered call strategy.

For the covered call, the OCC names the sideways phase as the situation in which the strategy is most likely to work. If the price rises above the strike price, the share will probably be assigned. If it falls by more than the premium, a loss arises, in the extreme case down to a worthless share.

What applies to withholding tax in Switzerland?

The Swiss Confederation levies a withholding tax (Verrechnungssteuer) of 35% on income such as dividends and interest (as of 24 October 2026, ESTV). The Swiss payer (the company or the borrower) deducts it directly from the payment. Its purpose is to curb tax evasion.

A fictitious example: on a CHF 3 dividend, the 35% amounts to CHF 1.05. CHF 1.95 is paid out. Private individuals resident in Switzerland get the deduction back if they declare their assets and income correctly in their tax return. The deadline is three years after the end of the calendar year in which the payment fell due (as of 24 October 2026). Foreign recipients generally bear the tax definitively. Double taxation agreements (treaties between states to prevent double taxation) may allow a refund.

This is a general overview and not tax advice. Individual circumstances may differ.

What are the risks?

• Interest: The borrower can default, in which case payments may not be made or may be reduced. When interest rates rise, the prices of existing bonds fall, more so for long terms. SIX also names inflation, liquidity and currency risk.
• Dividend: There is no firm commitment. The price may fall on the ex-date.
• Option premium: The upside gain is capped. The premium cushions losses only by its own amount. If the price falls by more than the premium, a loss arises, in the extreme case down to a worthless share. Assignment creates an obligation to deliver, and assignment can also happen early.
• Confusion: A distribution is not total return. Looking only at the payments means overlooking the price change.
• The term «passive»: All three types of income come with conditions. They do not flow by themselves or without risk.

Conclusion

Regular income from investments comes from three sources, each with a different payer: dividends, interest and option premiums. The dividend follows the resolution, interest follows the contract and the borrower's ability to pay, and the premium follows the price of an obligation taken on. A distribution redistributes assets; on the ex-date the price may fall by roughly that amount. How the income behaves depends on the market phase, and with the option premium the upside gain is capped.