Dividend - What Is Dividend? | Definition & Types Of Dividend | Ex-Dividend Date


Let’s Understand About Dividend!

For every long term investors, dividends are like a festive bonus distributed by the company according to their growth in the earnings.

Dividends are the reward made by publicly listed companies to the investors who showed faith in the company and entered into investing in their equity.

The annual dividend per share divided by the share price is the dividend yield.


How Does a Company Decide To Give Dividend?

# The company bring about profit in their business

# Board members decide and approve to give away some of the excess profit back to the investors.

# the company declares the value per share, the date when it will be paid, etc.,

# shareholders receive the dividend. 

Dividend dates!

#Announcement Date: Company management announces the dividend dates on this date, which should be approved by the shareholders before they can be paid.

#Ex-Dividend Date: Dividend eligibility expires on this date. Suppose if a stock has an ex-dividend date on 10th March, then the shareholders who buy stock on or later that date will not be getting the dividend.

#Record Date: It is the cut-off date, established by the company in order to determine which shareholders are eligible for the dividend.

#Payment Date: Payment is received by the shareholders on the payment date.

Example:

# EICHER MOTORS

Eicher Motors Ltd. has declared 20 dividends since June 25, 2001.

In the past 12 months, Eicher Motors Ltd. has declared an equity dividend amounting to Rs 125.00 per share.

At the current share price of Rs 2540.55, this results in a dividend yield of 4.92%. Adjusting for Bonus/Splits the dividend yield is 0.49%.


Announcement date

Effective date

Dividend type

Dividend (%)

Remarks

11-03-2020

19-03-2020

Interim

1250

Rs.125 per share interim dividend

10-05–2019

24-07-2019

Final

1250

Rs.125 per share dividend

09-05-2018

02-08-2018

Final

1100

Rs.110 per share dividend

14-03-2016

31-07-2017

Final

1000

Rs.100 per share dividend

16-02-2015

22-03-2016

Interim

1000

Rs.100 per share interim dividend

12-02-2014

11-03-2015

Final

500

Rs.50 per share dividend

12-02-2013

12-03-2014

Final

300

Rs.30 per share dividend

 

Why Are Dividends Paid?

# Mostly dividends are given to the shareholders since the management aim to honour the sentiment of the investors towards the company.

Doing this the investors continue to maintain a positive vibe for the company and their business model.

# Dividends are also taxfree income for investors all over the world. Capital gains realized through the sale of a share whose price has increased is considered taxable income.

Traders, mostly the swing traders can also benefit from the dividends that would offer instant tax-free gains.

# Sometimes when the company won’t have enough projects to generate a good amount of profit, they utilize their money to pay the dividends instead of reinvesting.

If a company has a good track record of dividend payments, at that state if the company suddenly decides not to pay(or pay less) the dividends, it could change the sentiment resulting in a decline of the stock price.

What Happens When A Company Do Not Give Dividends?

Some of the leading companies in the US like Cisco, Oracle, etc., do not pay dividends instead, they reinvest the profit in the business itself.

The dividend payment is hence not mandatory for the company, it usually does not affect the fundamental value of a company’s share price.

Usually, the companies with a high growth rate at an initial stage choose to reinvest their profits back into the business rather than paying dividends to help sustain their growth for the future.

Types Of Dividend

Special dividends: dividend which is issued under a particular condition where a company has been accumulating profits over several years, which are considered as excess cash that does not need to be used for reinvesting back to their business.

Preferred dividend: Preferred dividend is usually issued to the preferred shareowners and are paid fixed amount quarterly.

Asset: some shareholders are rewarded in the form of a physical asset by the company

Cash: companies mostly pay the dividend in the form of cash or in the form of a cheque to their shareholders.

Stocks: the company management could also issue new share to the market and pay it as a dividend back to the shareholders.

Leave a Reply

Your email address will not be published. Required fields are marked *