What is Dividend?

In mathematics, dividend means when a number is divided by another number. In finance also, the dividend means the same but is used in some different contexts. Let’s understand this article

Dividend in Finance

The Dividend is the profit that is shared among the shareholders by the company after managing their expenses. A company will give a dividend to its shareholder is their choice if they think that they want to reuse this profit in further expansion of the business then they may not give a dividend to the shareholders. Dividends can be declared any time in the year it is their choice.

Not all the company used to give dividends only large companies having good profits generally offer dividends and if you are looking for dividend stock then you have to invest your time to find when which company is declaring their dividend. So, if there is a time crunch then it is better to invest in a dividend-paying mutual fund or in the small case where you can expect dividends without giving much time.

Dividends received by the shareholder are subjected to income tax. A company may declare its dividend in the form of cash or the form of stock. Generally, the company used to pay dividends in the form of cash. Moreover, an announcement of the dividend accompanies a significant rise and fall in the stock price. 

Important Dates

The dividend can be announced monthly, quarterly, semi-annually, or annually. The board of directors of the company together with shareholder approval decides on the dividend. 

Announcement Date/Declaration Date: The company declares the upcoming dividend and the amount of money to be distributed as a dividend.

Ex-dividend Date: This date is very important and the investor should note this date to get the dividend of the company. The investor must buy the stock of that company on or before the ex-dividend date. After the ex-dividend date if you purchase the stock then you will not be eligible to get the dividend of the company. The ex-dividend date is 1 or 2 days before the record date.

Record Date: The company prepares the list of a shareholder who purchases the stock on or before the ex-dividend date of the company.

Payment Date: This date is chosen on which the payment is initiated to the shareholder accounts. This date is generally after 1 month of the record date.

It is noted that when the company declares its dividend the stock price of the company goes up and when the record date passes the stock price fall because the person buys the stock to get the dividend and sells it after getting the dividend.

Calculation of Dividend

It is best to know how to calculate the dividend of the stock to make your investment journey worthwhile. Whenever the company declares its dividend it is declared on the face value of the company, usually, you will find face value in the range of 1 to 10. 

Consider an example where a company declares a dividend having dividend % as 40% and stock face value is Rs 10. Now, the dividend per share can be given as (face value×dividend %) i.e.; 10×40÷100= Rs 4 per share.

Always calculate the dividend per share of the company to get maximum dividend and check the face value also as it is found that face value plays an important role in getting more dividends.