Dividend
Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Class 8, Ch 7 "Factors of Production"
Meaning
A dividend is the part of a company's profits that it pays out to its shareholders. It is paid as a fixed amount for each share. The company's board decides whether to pay a dividend and how much. It is not a fixed obligation like interest on a loan, so a company can skip it in a bad year. Since Dividend Distribution Tax (DDT) was abolished in 2020, dividends are taxed in the hands of the shareholder, not the company.
Example
A company declares a dividend of Rs 5 per share. An investor who holds 200 shares receives Rs 1,000. This amount is added to the investor's income and taxed.
Don't confuse with
- Interest: lenders and bondholders must be paid interest whether or not the company makes a profit. A dividend depends on profits and on the board's decision.
- Bonus issue: this gives shareholders free extra shares, not cash.
Related concepts
- Bonus issue
- Stock split
- Buyback
- Minimum public shareholding
- Delisting
- Insider trading
- Front-running
- Short selling
- Securities Lending and Borrowing