What are Dividends?
When a company generates profits, it may distribute a portion of them to shareholders in the form of dividends. This practice rewards shareholders for their investment and confidence in the company.
Example: If Mr. Jini holds 100 shares of ABC Ltd. and the company declares a dividend of â‚ą5 per share, Mr. Jini would receive â‚ą500 directly into his bank account if he holds the shares on the record date.
Dividend Jargons:
Below are some key terms related to dividend issue:-
Announcement Date:
The date when the company’s Board of Directors declares the dividend amount and key dates. This serves as the official notification regarding the dividend.
Ex-Dividend Date:
The day before the record date when the stock starts trading without dividend eligibility. Investors purchasing the stock on or after this date will not receive the dividend.
Record Date:
Shareholders who own the stock on this date are eligible for the dividend payment.
Payment Date:
The date on which the dividend is credited to eligible shareholders' registered bank accounts.
How to receive dividends?
To receive a dividend, shareholders must hold shares by the company-specified record date. Afterward, dividends are typically credited directly to the shareholder's bank account associated with their Demat or investment account. (In cases where a bank account issue exists, the company dispatches the dividend by cheque to the registered address.)
How are dividends expressed?
Dividends are often shown as a percentage of the share’s face value. For instance, a ₹10 face value share with a 30% dividend provides ₹3 per share. Some companies declare dividends based on the market price or as a fixed amount per share, which may appeal to income-focused investors.
Dividend Stocks vs Growth Stocks
Investors often weigh the benefits of dividend stocks against growth stocks. Below is a table summarizing the differences:
| Dividend Stocks | Growth Stocks |
| Provide regular dividends, offering a steady income stream | Typically reinvest profits, focusing on expansion and growth |
| Usually established companies with stable earnings | Often newer companies reinvest profits for future growth |
| Attract income-focused investors seeking passive income and stability | Attract investors aiming for capital appreciation and higher potential returns |
| Lower price volatility, offering security during market fluctuations | Higher price volatility, influenced by market speculation and growth outlook |
| Valued for dividend yield and financial stability, seen as safer investments | Valued for potential future growth, offering high rewards but greater risk |
What is Dividend Yield?
Dividend yield is a measure of the annual dividend income you can expect to earn per share compared to the stock's current market price, expressed as a percentage. It’s calculated by dividing the annual dividends per share by the stock price.
Some companies offer above-average dividend yields to attract public investment and increase share subscriptions. While a higher dividend yield can indicate a potentially lucrative opportunity, it’s essential for investors to evaluate the company's overall financial health before making decisions.
Conclusion
Understanding how dividends are credited is crucial for shareholders looking to optimize their returns. Dividends reflect a company’s financial health and offer a form of passive income. Shareholders should confirm eligibility and monitor the dividend process to maximize their benefits.
