Introduction
You can earn money from the share market by investing in stocks, trading, or getting dividends. dividend in share market is a very good tool to earn a regular passive income, even the world’s biggest investor warren buffet loves dividend stocks. Here you will get to know about dividends on shares and the terms related to them very clearly and in brief.
(read it carefully and till last because I have mentioned some advice in this article which can be beneficial for you as it can help you make money every time from dividends, I have shared my own experience).
What is Dividend in share market?
A dividend in share market refers to the amount of money a company pays to its shareholders as a reward for trusting and investing their hard-earned money into the company. The dividend is the distribution of a company’s net profit among its shareholders after fulfilling all its current and near future liabilities ( payment to creditors, interest on loans, salaries, wages, and many more).
In India, there are 2 common forms in which dividend in share market is paid i.e, in the form of cash and the form of shares.
- Cash dividend: It is the most popular form of a dividend in share market where companies pay out dividends to their shareholders directly into their registered bank accounts.
- Stock dividend: In case of stock dividends, companies issue additional shares to their existing shareholders.
When the companies make profits out of their business activities they can either reinvest it, retain it for near-future projects, or pay it as a dividend to their shareholders. But it is not compulsory for a company to pay out a dividend.
The Company’s board of directors (BOD) decides whether to pay a dividend or not, in the board meeting.
Types of dividends
There are three common types of dividend in share market:
- Interim dividend: An Interim dividend is a form of a dividend that is paid during the financial year, before the preparation of final accounts. Interim dividends are approved by the board of directors and can be paid monthly or quarterly basis.
- Final dividend: final dividend is a type of dividend that is recommended by the board of directors after the preparation of final accounts of that financial year and approved by the shareholders in the annual general meeting (AGM).
- Special dividend: It is an extra dividend in share market, paid by any company to their shareholders when a company makes out unexpected profits, it is a non-recurring type of dividend.
What is Dividend yield?
The dividend yield is the percentage of the amount of money that a company pays to its shareholders in a financial year, calculated based on the current price of the share.
The formula for calculating dividend yield:
Amount of dividend paid in a financial year / current price of the share * 100 = div. Yield
Eg: XYZ ltd had paid a dividend of rupees 25 per share and the current price of XYZ Ltd’s share is 580 rupees, so the dividend yield will be 25/580*100= 4.31%.
(Note: dividend yield of a company changes when the stock price increases or decreases, or even the company can change the amount of dividend which can lead to fluctuations in div. Yield percentage.)
Settlement cycle
settlement cycle is the time that is required for a trade to get settled, the settlement period is T+1 which means today + 1 more trading day but earlier it was T+2 day, if you have purchased a share then money will be deducted from your d-mat account once the transaction is completed, but actually, you will receive shares into your d-mat account after the settlement (i.e T+1). so, you have to purchase shares before the ex-dividend date so that it would get reflected in your d-mat account on the record date.
Earlier, before 27 January 2023 settlement cycle was of T+2 day so the ex-dividend date is set 2 days before the record date, which currently is one day before the record date because of the T+1 settlement cycle.
Taxation on dividends
Earlier, before 31st March 2020, a 15% tax is directly deducted from your dividend amount by the dividend-giving company before transferring it to your bank accounts, irrespective of your income slab.
But, from 1st April 2020, no 15% tax is deducted from your dividend amount by the dividend-paying company and you will receive the whole dividend amount, but it will be added to your income and you have to pay tax according to which income tax bracket you are standing.
Note: TDS (tax deducted at source) will be deducted which is 10% if the amount of dividend exceeds 5000 rupees from each company in a single financial year, but if your income is non-taxable then you can just claim that 10% TDS by filling Income Tax Return (ITR).
List of some best dividend stocks:
You can earn a good amount of passive income from these highest dividend-paying stocks:
- Hindustan Zinc Limited, (current dividend yield 20.88%)
- ONGC, (8.76%)
- IOCL, (10.81%)
- Vedanta Limited, (25.62%)
- Coal India Limited, (10.49%)
- HUDCO, (7.88%)
- RSWM Ltd, (9.60%)
- HPCL Ltd, (6.14%)
- SAIL Ltd, (5.48%)
- Nippon Life India Ltd, (5.24%)
Conclusion
We hope that after reading this article, you will have got in-depth knowledge about dividend in share market, we have covered all the important points related to dividend in share market in this article just read it attentively after that you can also manage to earn a good amount of passive income from dividends. (thankyou)
Important note: Generally, on the ex-dividend date a share price falls to approximately the amount of dividend the company is paying because when the company pays dividends then its reserves are affected which results in a decrease in share price.
So, if you are buying any company’s share to get a dividend then don’t buy it one or two days before the ex-dividend date either you should buy it near to announcement date or on the announcement date because from the announcement date share price starts increasing, if you want dividend then you have to hold shares till ex-dividend date or if you are happy with the increment in price from announcement date till ex-dividend date then you can sell your shares and enjoy your profits, you can earn good profits by simply applying this trick.
FAQs:
Q1 How to get eligible for dividend in share market?
Ans To get eligible for dividends you should have to buy shares of the dividend-giving company before the ex-dividend date given by the company.
Q2 Do I will receive a dividend if I purchase shares on the ex-dividend date? Why?
Ans2 No, you will not receive a dividend if you buy shares of a dividend-giving company on its ex-dividend date but the person who has sold his/her shares to you will receive dividend money, it simply happens because of the settlement cycle (T+1).
Q3 When will I receive my dividend payment?
Ans3 In case of an interim dividend, you will get dividend payment directly into your registered bank account within approximately 30 days of the announcement date, but In case of a final dividend, you will receive it within 30 days of the AGM.
Q4 What is AGM (annual general meeting)?
Ans4 AGM is the yearly meeting of a company’s shareholders where directors of the company present the annual report of the company’s performance to the shareholders, shareholders can vote for current issues here, also if the majority of shareholders agree to the distribution of dividends then only the dividend is approved.
Q5 What is a good dividend yield?
Ans5 According to me, a good dividend yield is 5-7%, more than 7% dividend yield is a very good div. yield.
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