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Saturday, 29 August 2015

Dividends overview

Definition
Dividend is the amount paid by the company to share holders. When company makes profit out of the business, it may decide to pay some amount to shareholders in the form of dividends.

Dividends can be paid in 3 forms.

  1. Cash amount
  2. Dividend reinvestment plan
  3. Share repurchase

Why are they paid? Is it mandatory to pay dividends? Any laws of SEBI?
Dividends are paid to create the trust among investors and retain existing investors. Frequent dividend payments also attract new investors for the company.

When they are paid?
Some companies have fixed schedule when they issue the dividend. While others may issue the dividend at any time. Board of the company takes these decisions. In Indian context, companies usually pay dividends on annual basis.

Important dates related to dividends
Here is the list of important dates.

  1. Declaration date - Date on which dividend announcement is made.
  2. Payment date - Date on which actual payments are made to the eligible share holders
  3. Ex-Dividend date - This is very important date. All share holders owning the shares before this date would be eligible to get the dividends. So if Ex-dividend date is 30-Aug-2015, then you would get the dividend if you had bought the shares before 30-Aug-2015.


How much are they paid? What factors influence dividends
Dividend amount is decided by the company investment manager. Dividends are usually paid per share basis. For example - Infosys declared a dividend of 60 Rs. per share in 2015. So if you had 1000 shares of infosys, you would have received 60000 Rs. in the form of dividends.

Tax on dividends
Different countries have different rules on dividend taxation. For example - In India, shareholders receiving the dividend amount do not need to pay the tax While in other countries small amount of tax is levied on the dividend amount.


What do you think on this topic? Please express your opinion or ask any question through comment below. You can write to me at reply2sagar@gmail.com

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