Dividend
A dividend is a part of a company's profit that it pays out to its shareholders, usually as cash, for each share they hold. The company's board decides whether to pay one and how much. A company is never obliged to pay a dividend, and many do not.
How a dividend works
A company earns a profit and has two broad choices: keep the money in the business to grow, or pay some of it out to the owners. A dividend is the second choice. It is declared as an amount per share, so someone who holds 100 shares receives 100 times that amount.
In the cash flow statement, dividends paid appear under financing activities, because the cash is going out to the people who own the company.
The dates that matter
Two dates decide who receives a declared dividend. The record date is the day the company checks its list of shareholders. The ex-dividend date is the first day on which a new buyer no longer gets the dividend. To receive it, you must already own the share before the ex-dividend date.
On the ex-dividend date the share price usually adjusts down by roughly the amount of the dividend, since that cash has left the company. So a dividend is a payout of value you already owned, not free money added on top.
Dividend yield
Dividend yield is the yearly dividend per share divided by the share price, shown as a percentage. It tells you how much cash a share pays relative to what you pay for it today. A high yield can simply mean the price has fallen, so it is a figure to read with context, not a reason to buy on its own.
Tax and the fine print
Dividends are taxable income for the investor, and the rules can change, so check the current treatment before relying on any figure. Maetis does not give tax or investment advice.
A dividend on 200 shares (hypothetical numbers)
Suppose a company declares a dividend of ₹5 per share and you hold 200 shares before the ex-dividend date. You receive 200 x ₹5 = ₹1,000. If the share was priced at ₹250, the yield on that payout is ₹5 divided by ₹250, which is 2 percent. On the ex-dividend date the price would usually be expected to move down by about the ₹5 that has gone out.
Common questions
- What is a dividend in simple words?
- A share of a company's profit paid to the people who own its shares, as an amount per share.
- Does every company pay a dividend?
- No. Many companies keep their profit to grow the business, and a dividend can be reduced or stopped.
- What is the ex-dividend date?
- The first day on which a new buyer of the share does not get the declared dividend. You must own the share before it to receive the payout.
- Is a dividend a guaranteed income?
- No. The board decides each time, so past dividends do not promise future ones.