Ajitansh Kar, Gurugram, 20th October 2022
Generally, when a discussion about the stock market emerges, one of the hottest topics to talk about is dividends. People who are investing in the markets or have some idea about stocks, are likely to have heard this term.
Now let us look at what dividends are and what they signify. Dividends can simply be expressed as the amount of money which the shareholder receives as a reward for holding the stock of the underlying company. It is generally a part of the Net Profit which is given to the shareholder in order to maintain its trust in the company. Companies that are highly profitable, regularly pay dividends to its shareholders, which is generally eitheron a quarterly, bi-annually, or annual basis.Sometimes, due to the sale of any asset or due to the occurrence of a special event in a particular company, the firm declares a special dividend which is generally higher than the dividends paid on a quarterly basis.
A dividend is a great way for an investor to earn regular income. It is generally awarded as a cash reward and is directly credited to the bank account of the shareholder. While dividend ad a conceptis easy to understand, there are certain terms related to it, which the average investor does not know about. Let’s try to dig deeper and understand them.
First term related to dividends which everyone should know about is the dividend yield. The dividend yield is a ratio which tells us how much dividend a company is paying out to its investors with regard to its current market price. It is simply calculated by dividing the total dividend which a company pays throughoutthe yearby the current market price of the stock of the company. A good dividend yield generally lies between 2% to 4%.
The next topic which is important to understand while talking about dividends is the difference between the terms record date and payment date. The record date announced by the company refers to the date by which all the people who want to be considered as recipients of the dividend must hold the stock in their demat account. Anyone buying the shares of the dividend paying company after the record date, will not be eligible for receiving that particular issue of the dividend. The payment date refers to the date when the company finally credits the dividends to its shareholders.
Investors interested in earning a regular income from their investment in shares should opt for those companies that have a track record of paying dividends regularly.
