What is Dividend, Types and How it Works

Last updated on Oct 04, 2022 in Stock Market

Dividend Meaning: There are mainly two ways to earn money from the stock market, one is by buying and selling shares and the other is Dividend, about which very few investors know. If you also invest in the stock market, then you should know every single piece of information about Dividends. For your information, let us tell you that many experienced investors earn lakhs of rupees every month through dividends.

In today's article, we have given you complete information about what is Dividend, in this article we have covered every topic related to Dividends which is important for you and we sincerely hope that if you read this article till the end. You won't need to go to any other blog to search for dividends.

So without wasting any time let's start this article of today and know what is dividend in detail.

What is Dividend

sequence

1 What is Dividend (What Is Dividend )

2 How Dividend Works (Dividend Work )

3 Types Of Dividend

3.1 #1 – Cash Dividend

3.2 #2 – Stock Dividend

3.3 #3 – Asset Dividend

3.4 #4 – Scrip Dividend

3.5 #5 – Liquidating Dividend

3.6 #6 – Special Dividend

4 Dividend Rules

5 What is Dividend Policy (Dividend Policy )

6 How Dividend Is Calculated (Dividend Calculation )

7 How to get dividend

8 Important Dates Related to Dividend

9 What is Dividend Yield

10 Highest Dividend Paying Companies

11 FAQ: Dividend Kya Hai

12 Conclusion: What is Dividend

12.1 Related Articles

A dividend which is called a dividend meaning is some part of the profit or profit given by companies to their shareholders. That is, when companies give some percentage of profit to their shareholders, it is called a Dividend or Dividend. The rate of dividend is decided by the management of the company.

The company gives dividends to the shareholders as a reward for investing in the company and showing confidence in the company. The dividend is paid on the fixed amount of the share. Companies distribute dividends out of their net profits. Net profit remains after deducting all expenses, taxes, interest, etc. from the profit that the company makes.

Companies give the number of Dividends on the basis per share. For example, if you have 100 shares of X company and that X company has declared dividend of Rs 10 per share then you will get 100*10 = Rs 1000 as dividend. Apart from buying and selling shares, investors also earn well from Dividends.

Simply put, the amount received by the shareholders out of the net profit of the company is called a dividend.

How Dividend Works

When the companies listed in the stock market earn good net profit or net profit by doing good business, then the management of the company decides whether to invest the profit again in the company or distribute the profit among the shareholders.
When the management of the company reaches a final decision to distribute the dividend, the Board of Directors of the company declares the dividend to be distributed,
In which when the dividend will be paid, dividend per share and record date is declared.
Finally, the dividend is distributed to the shareholders on the due date.

Types of Dividend

Companies mainly give 6 types of dividends to the shareholders.

Cash Dividend
Stock Dividend
Asset Dividend
Scrip Dividend
Liquidating Dividend
Special Dividend

Let us now know about all these 6 types of Dividends one by one.

#1 – Cash Dividend

As the name suggests, this type of dividend is paid in cash. Companies transfer the number of dividends directly to the bank account of the shareholders. Sometimes it is also given in check. The cash Dividend is the most popular dividend.

#2 – Stock Dividend

In Stock dividends, companies can also give shares of the company to the shareholders in exchange for cash. Shareholders have the option to choose the type of dividend they want.

#3 – Asset Dividend

When the company pays any kind of movable or immovable property or non-monetary property in the form of dividends to the shareholders, it is called Asset Dividend.

#4 – Scrip Dividend

Scrip Dividend is very different from the three previous dividends. When the company does not have sufficient funds to pay the dividend, then companies issue a Scrip Dividend. A scrip Dividend is a guarantee given by the company to the shareholders that they will pay the dividend in the future.

#5 – Liquidating Dividend

When a company is winding down its business, it pays Liquidating Dividend to its shareholders. This is the final dividend paid by the company to the shareholders.

#6 – Special Dividend

When the company pays the dividend out of its dividend policy, then this type of dividend is called Special Dividend. This dividend is higher than the normal dividend. When companies make more profit, they pay this type of dividend.

Dividend Rules

If you are an investor then you must be aware of the rules of dividends.

It is not mandatory for any company to give Dividends to the shareholders.
All rights related to giving Dividends are with the Board of Directors of the company.
If a company is giving Dividends to its shareholders every time, then it is not necessary that it will give Dividends to the shareholders in the future also.
The company always gives Dividends on the face value and not on the share price. The share price of a company is Rs 100 and the face value is Rs 10. If the company declares to give 100 percent Dividend, then it means that the company will give 10 rupees Dividend on every share.

What is Dividend Policy

The principles or rules that are followed to determine the rate of dividend are called dividend policy. Every company has its own separate dividend policy and whenever the company's Board of Directors distributes dividends, they distribute it under the company's dividend policy.

How Dividend Is Calculated (Dividend Calculation )

All the companies listed in the stock market have a face value. On the basis of this face value, companies distribute dividends to the shareholders. The company has no relation to the calculation of dividends from the current market price.

For example, suppose the price of a share of SBI is Rs 1000 and its face value is Rs 100. Now SBI has announced giving a 100% dividend, so it means that the dividend per share of SBI is Rs 100. Similarly, if SBI announces to give a 50 % dividend, then the dividend per share of SBI is Rs 50.

If you have 10 shares of SBI then you will get 10*100 = Rs 1000 in 100% dividend. So this is how the dividend is calculated.

How to get dividend

The company declares dividends to the shareholders in case of profit-making. The dividend is credited to the bank account linked to the demat account of the shareholder. Like your demat account is in Upstox and your PNB bank account is linked in Upstox. So the dividend you will get will come from your PNB bank account.

Important Dates Related to Dividend

There are some important dates related to dividends that all shareholders should know about.

Dividend Declaration Date – This is the date when the Board of Directors of the company declares dividends to the shareholders.
Record Date - Every company's shareholders have a record book in which the names of all the shareholders are there. This record changes daily, so the record date is determined. Only those shareholders whose names are in the record book till the record date get the dividend. The record date is also told on the day of the Dividend Declaration Date.
Ex-Dividend Date – This is the date till which the shareholders can buy the shares and get the dividend. This date is generally up to 2 days before the record date. If an investor buys shares after the Ex-Dividend Date, then he does not get dividends. Ex-Dividend Dates are determined by the stock exchange so that the names of all the right shareholders are recorded in the record book till the record date.
Dividend Payment Date – The day on which the dividend is paid to the shareholders is called the Payment Date.

What is Dividend Yield

Dividend Yield is a financial ratio that shows the ability of a stock to pay dividends. Dividend Yield lets the investor know what percentage the investor will get as a dividend in the investment made at the current market value of the stock. Dividend Yield keeps on fluctuating depending on the share price.

Dividend Yield = (Dividends Value Current Market Price) X 100

Let us understand with an example, suppose there is a company X whose share price is Rs 500 and its face value is Rs 50. The company has announced to give a 100% dividend (i.e. the company will give a dividend of Rs 50 per share). Now talking about Dividend Yield, this is the formula.

Dividend Yield = (50/500)*100 = 10%

Highest Dividend Paying Company

Following are some of the major companies offering the highest dividend bonus.

Coal India
Vedanta Limited
BPCL
IOC,
NMDC,
sonata software

Note – We do not recommend investing in these companies here, it has been told to you for informational purposes only. Before investing in any company, take expert advice.

FAQ: Dividend Kya Hai

What is a dividend in the share market?

When companies give some percentage of their net profit to the shareholders, it is called a dividend.

When is the dividend received?

The dividend is paid only in case the company receives profit.

What is the Hindi meaning of dividend?

The dividend is called a dividend i.e. a part or part of the profit.

What is a Dividend Policy?

The rules under which the company distributes dividends to the shareholders are called dividend policy.

Conclusion: What is the dividend

In this blog post, we have provided you with complete information about dividends and we sincerely hope that after reading this article all the doubts related to dividends will be cleared in your mind. The dividend is a good way to earn passive income from the share market, you can also earn a good dividend by investing in the share market.

So, friends, this is all in this article, hope you have got to learn something from this article like our other articles. If you liked this article, then share it with your other friends on social media as well and tell them this dividend information too.