What are Dividends?
A dividend is a distribution of a portion of a company's earnings to its shareholders, as determined by the company's board of directors. It is a reward to investors for putting their money into the venture. Dividends are usually paid out as cash, but can occasionally be distributed as additional stock. Stable, mature companies often pay regular dividends, making them attractive to income-focused investors.
Key Dividend Dates to Remember
- Declaration Date: The date the board of directors announces the dividend, its size, and the record and payment dates.
- Record Date: The cut-off date established by the company to determine which shareholders are eligible to receive the dividend. You must be on the company's books on this date to qualify.
- Ex-Dividend Date: Usually set one business day before the record date. If you buy a stock on or after the ex-dividend date, you will not receive the upcoming dividend. The stock price typically drops by the dividend amount on this day.
- Payment Date: The day the dividend funds are actually credited to the eligible shareholders' bank accounts.
Other Major Corporate Actions
Bonus Issues: A company issues free additional shares to existing shareholders. For example, a 1:1 bonus means you get 1 extra share for every 1 you hold. While the number of shares increases, the price per share drops proportionally, keeping the total investment value the same initially. It increases liquidity.
Stock Splits: A company divides its existing high-priced shares into multiple lower-priced shares. A 1-to-10 split means 1 share worth ₹1000 becomes 10 shares worth ₹100 each. Like a bonus, it doesn't change the fundamental value of the company but makes the stock more affordable for retail investors.