What is dividend purification?

Why purification is needed

Halal stock screening allows companies with a small amount of non-compliant income, usually under about 5% of revenue, because almost no listed business is 100% pure. They may earn interest on cash in the bank or sell a few non-halal items. When you receive a dividend, a slice of it comes from that income. Scholars and standard-setters such as AAOIFI say that slice isn't yours to keep. The Prophet ﷺ said Allah is good and accepts only what is good (Sahih Muslim 1015), so Muslims try to keep their earnings free of anything doubtful.

The idea is the same as with bank interest: you don't use it yourself, you pass it on. See What do I do with interest money from my bank account?

How to calculate it

The basic formula is simple:

• Find the company's non-compliant income ratio. For example, if 3% of its revenue is from interest or haram sales, the ratio is 3%.
• Multiply your dividend by that ratio. A $200 dividend at 3% means $6 to give away.
• Repeat for each holding and add the amounts up.

Many halal stock screening apps and research services show a "purification ratio" for each company, so you don't have to dig through annual reports. If you hold a Shariah fund, check its factsheet or annual report: many funds purify for you before paying out, while others publish a figure for you to donate yourself.

Where the money goes

Give it to general charity, such as helping the poor, a food bank or a public cause. Don't count it as zakat, and don't expect reward for it as your own charity, since you're simply getting rid of something that wasn't yours. Don't use it for your own benefit, like paying your bills.

What about capital gains?

Scholars differ on whether profit from selling shares also needs purifying. Many say purifying dividends is enough, since price gains come from the value of the business as a whole. Others recommend purifying a small part of gains too, to be safe. Either view is held by serious scholars. Your shares may also have zakat due on them, which is separate. See Do I pay zakat on stocks?