1.14What is a dividend?
Time-sensitive: Dividend tax treatment is as of 2026 (taxed at your slab; companies deduct TDS above a yearly limit). Rules and rates change, so check the official source before acting.
1What is it?
A dividend is a part of the company’s profit paid in cash to shareholders, usually a fixed amount per share.
2Why does it exist?
It rewards owners for investing. Mature companies that earn more cash than they need for growth often pay regular dividends. Fast-growing companies often pay little, because they reinvest profits.
3Real-life example
Your friend’s shop, which you co-own, made extra profit this year, so they hand you ₹2,000 as your share. That is a dividend.
4Stock market example
Important dates:
- Record date: the company checks who the shareholders are on this date.
- Ex-dividend date: buy before this date to get the dividend. With T+1 settlement, the ex-date is usually the same as the record date.
- On the ex-date, the share price usually drops by about the dividend amount, because that cash is leaving the company.
5Calculation
Dividend received = Dividend per share × Shares held
- A company declares ₹10 per share (hypothetical).
- You hold 50 shares.
- ₹10 × 50 = ₹500
You receive ₹500 in your bank account. In India dividends are added to your income and taxed at your slab rate.
6Advantages
- ✓Regular income without selling shares.
- ✓A sign the company has real cash.
7Risks
- Not guaranteed; can be cut.
- A very high dividend yield can be a warning sign if the price has crashed.
- Taxable at your income slab.
8Quick revision
- Dividend = cash from profits, per share.
- Buy before the ex-date to receive it.
- Price usually drops by about the dividend on the ex-date.
- Taxed as income.
9Knowledge check
Q1. A company pays ₹8 per share and you own 25 shares. How much do you get?Show answer
₹8 × 25 = ₹200.
Q2. Why do some fast-growing companies not pay dividends?Show answer
They reinvest profits to grow faster.
Q3. What usually happens to the price on the ex-dividend date?Show answer
It drops by about the dividend amount.