When you invest money in the stock market, you invest with the expectation that you will get profit and In the share market, you get profit on your shares in 2 ways The first is an increase in the price of the shares held by you and the second is received in the form of dividend.In this blog we will tell you what is dividend
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What is Dividend ?
Dividend which means share of profit In the language of stock market, some part of profit in the shares of the company which is paid by the company from time to time to the shareholders according to its profit is called dividend.
A company pays dividends to make and retain shares attractive to investors. Usually a company declares its earned profit in its quarterly results, then also declares dividend if the company is paying dividend.
Dividends are not always paid out of profits. Sometimes the company does not make profit but has a lot of cash flow around. In such a situation, the company can also give dividend out of that cash.
How are Dividends Paid on Shares
Dividend can be paid at any time during the financial year. If the dividend is paid in the middle of the year then it is called interim dividend and if it is paid at the end of the year then it is called final dividend.
- Interim Dividend
- Final Dividend
What are the Types of Dividend
1. Cash Dividend
Cash Dividend Most companies pay this dividend. Payment is usually made electronically; Dividends are paid on behalf of the company directly to the shareholder’s bank account, but sometimes the payment can be made through cheque.
2. Stock Dividend
In Stock Dividend, the company gives new shares to the shareholder in the form of profit to the shareholders. For example, a company may issue a stock dividend of 10%, which would require issuing 0.10 shares for every share owned by existing shareholders, so an owner of 100 shares would receive ten additional shares.
3. Property Dividend
Property Dividend refers to the dividend paid to the shareholders in the form of property and not in the form of cash. For example, a company may decide to send its products to shareholders as dividends. The issuer calculates the dividend on the fair market value of the products shipped.
Property Dividend are alternatives to Cash and Stock Dividend. This type of payment is not as common as cash dividends and regular stock.
4. Scrip Dividend
Sometimes company declares dividend but they do not have enough cash, then that company can issue Scrip dividend. Which is a type of promise in which a certificate is given to the shareholders promising to pay cash after some time known as Scrip Dividend.
How are dividends paid?
Dividends can be paid monthly, quarterly, half yearly or annually. Sometimes, there is no scheduled program to pay, and if the company is making exceptional profits then it may even give a special one time dividend. Payment can be made in the form of cash or additional stock. Dividends can be used to buy back shares in the open market. Dividends, checks, are usually deposited into your bank account.
Dividend Calculation Formula
Company declares dividends in different ways, sometimes with high profits, high dividends and sometimes low depending on the board member of that company.But the company has the right not to pay dividends, even if there is a large profit, they can use the profit to expand their company’s strategy.
But it is very beneficial for the shareholders when they(Company) take the decision to give the dividend and now we will tell you how dividend is calculated.
Suppose company has decided to give 50% dividend that means 50% of FACE VALUE, each and every stock has own face value apart from stock price, stock price changes everyday but the FACE Value Does not change until unless stock has not big changed such as stock split.
So companies fix dividend on their FACE VALUE, suppose company AB decides to pay dividend at 50% and its face value is Rs.10. Therefore the dividend will be calculated as FACE VALUE multiply by DIVIDEND and multiply by STOCK QUANTITY in your portfolio.
DIVIDEND =FACE VALUE x DIVIDEND x STOCK QUANTITY (DIVIDEND) 10 x 50% x 100 = 500
If suppose you own 100 shares of company AB and the company has decided to pay a dividend of Rs 5 per share, then you will get 100*5=500 as dividend on your 100 shares as shown in image above.
IMPORTANT DIVIDEND DATES ? DECLARATION DATE | EX-DIVIDEND DATE | RECORD DATE AND PAYMENMT DATE
1.Declaration date : On this date the AGM meeting of the Board of Directors of the company is held and they declare the value of the dividend and the date on which the dividend will be paid to its investors.
2.Ex-dividend date : If you want a dividend, you must have held shares of the company before this ex date.in other word If you made a purchase on or after this day you will not be eligible for the dividend
3.Record date : On this date the company looks at its records and decides to pay dividend to the designated shareholders.This means that the company sets a data which decides whether you will be the beneficiary of the dividend or not.
4.Payment date: The company pays dividend to the investors on this day.
FAQ ON DIVIDEND
Who will be eligible for the dividend?
Any person who has purchased shares of a company which declares dividend and fulfills the criteria for dividend.
Is dividend good or bad?
Dividends are good things that describe the growth of a company. It generally seems that good companies pay dividends to maintain stock quality.
How are dividends paid?
Mostly dividends are paid in cash, which means the shareholder receives the dividend in his account on the expected date but there are any other method also such as stock dividend, property dividend, scrip dividend
Are dividend stocks bad?
Of course not, but beware of those companies which company is not doing some good business and pays different types of dividends, such company can be lossy. Some companies sold their shares by paying huge dividends to the shareholders and then the investors suffer losses due to their falling prices.
Is dividend income taxable?
Yes dividend is taxable in India from F.Y 2021 onward but there is a certain limit which is tax exempt. If you have earned more than Rs 5000 from ABC Company, then ABC Company will give you the dividend after deducting TDS from the dividend.You can file deducted TDS of dividend at the time of filing income tax return.
Do all stocks pay dividends?
No, there are many such companies in the stock market which do not pay dividend.
what is record date for dividend ?
On this date the company looks at its records and decides to pay dividend to the designated shareholders.This means that the company sets a data which decides whether you will be the beneficiary of the dividend or not
That’s all!! Hope you got to know what is dividend, if you liked this blog or have any questions about it Please Do comment and Connect with us .