Dividend Meaning

When a company is earning profits and decides to share part of the profit with its shareholders – the payment they make is called as dividend.

The Dividend Process in India has 3 important dates:

1. Dividend Declaration Date: It’s the date on which the company declares that they will be paying dividends to their shareholders.
2. Record Date: All shareholders, who have shares of the company in their demat account on this date, will get dividend.
3. Ex-Dividend Date: If you buy shares on this date or thereafter, you don’t get dividends. Ex-dividend date is usually one working day before the ‘Record Date’.

Note: To receive dividend, you will have to buy shares two trading days before the ‘Record Date’. This is because, any share that you buy today will get credited to your demat account two days after your purchase.

There are 3 types of cash dividend that a company can declare:

1. Interim Dividend – Is paid before finalisation of year-end financial statements. Interim dividends can be paid several times in a year.
2. Final Dividend – Is paid after closing all financial statements for the year. Final dividend is usually declared at the Annual General Meeting (AGM).
3. Special Dividend – Is paid in special circumstances only. Dividend paying companies rarely declare this type of dividend unless there has been a specific event like sale of an asset.

When a company declares dividend, the number announced is in percentage. For example, headline may read “Reliance Industries announces 60% dividend” – This means Reliance will pay 60% of the ‘face value’ of a share as dividend. The ‘Face Value’ of Reliance Industries share is ₹ 10. So, for every share of Reliance that you have in your demat account, you will received ₹ 6.5 in your bank account.

How will I receive my dividend?

Dividend payments are made through cheque, which is delivered to your registered address. Dividends can also be transferred directly to your bank account – i.e if your bank account is linked to your demat account.

How to get dividend and how much dividend will I get?

Let’s assume you have bought 100 shares of Infosys on January 1st 2016. Here is how much money you would’ve received as dividend.

Note: The Face Value of Infosys share is ₹ 5.

Points to note for the above example:

1. You purchased 100 shares of Infosys on January 1st 2016. The price per share on that date was ₹ 552. You paid a total of 55,200 to buy 100 shares.
2. It you hadn’t sold a single share between January 2016 to this date (December 2019), you would’ve received dividends worth ₹ 11,300 into your bank account.
3. The current market price of one Infosys share is ₹ 733 today (December 18 2019). The value of 100 shares would be ₹ 73,300.
4. Your total profit if you sell all shares of Infosys today will be: ₹ 73,300 (current value) minus ₹ 55,200 (your investment) plus ₹ 11,300 (dividend received). Your total profit will be ₹ 29,400.