A dividend is a share of a company's profit paid in cash to its shareholders, usually once or twice a year. Anyone who holds the share on the record date gets it. Since April 2020 dividends are taxed at the shareholder's slab rate. The company deducts 10% TDS once its dividends to one shareholder cross Rs 10,000 in a financial year.
A dividend is cash a company pays to its shareholders out of the profit it has earned. It is declared per share. A dividend of Rs 20 on 100 shares means Rs 2,000 lands in the bank account. Companies are not obliged to pay one. Young, fast-growing businesses usually keep the profit to reinvest. Mature ones, such as the blue chips in consumer goods, IT and banking, pay regularly.
Types of dividend
An interim dividend is declared by the board during the year, often with quarterly results. A final dividend is proposed after the year ends and approved by shareholders at the annual general meeting. A special dividend is a one-off, usually after a big asset sale or an unusually good year. Some companies return cash through a buyback instead, which is taxed differently.
Record date and ex-date
The company announces a record date. Whoever is on the shareholder register at the end of that day gets the dividend. Share settlement in India is T+1, so the ex-dividend date is now the same as the record date. A buyer has to purchase the share at least one trading day before the record date for it to settle in time.
On the ex-date the share price normally opens lower by about the dividend amount, since that cash has left the company. Buying a share the day before the record date just to collect the dividend does not create free money. That is a common misunderstanding.
Dividend yield
Dividend yield is the annual dividend per share divided by the share price. A stock at Rs 1,000 that pays Rs 20 a year yields 2%. Indian large caps mostly yield between 1% and 3%. Public sector companies and some commodity producers yield more. A very high yield is worth a second look. It often means the share price has fallen hard, not that the company is generous. A list of consistent payers is in best dividend paying stocks in India.
How dividends are taxed
Until March 2020 companies paid dividend distribution tax and shareholders got the money tax-free. The Finance Act 2020 ended that. From financial year 2020-21, dividends are added to the shareholder's income and taxed at the slab rate. Companies deduct TDS at 10% under Section 194 once dividends to one holder cross Rs 10,000 in a year. Budget 2025 raised that limit from Rs 5,000, with effect from 1 April 2025. The TDS shows up in Form 26AS and is adjusted when the return is filed.
What dividends mean for investors and traders
For long-term holders, dividends are the income part of total return. Reinvesting them compounds the holding. How to do that automatically is explained in dividend reinvestment plans. A steady, rising dividend is also a useful sign that profits are real. Cash has to exist to be paid out.
For F&O traders, the ex-date drop matters. Futures prices already allow for an expected dividend. A surprise special dividend can still move a stock and its options. Exchanges adjust strikes and lot sizes for very big payouts. That is worth checking before holding a position through a record date. Dividends also get confused with bonus issues and splits, which change the share count but pay no cash. The difference is covered in stock split and dividend meaning.
FAQs
How is the dividend paid?
By direct credit to the bank account linked to the demat account. A final dividend usually arrives within a month of the record date. An interim one comes sooner.
Are dividends guaranteed?
No. The board decides each time. Even companies with long records can cut or skip a dividend in a bad year.
Is dividend income taxed in the new tax regime?
Yes. It is taxed at the slab rate in both regimes. The Rs 10,000 TDS limit applies per company, not in total.
Do preference shares get dividends?
Yes, at a fixed rate and ahead of equity shareholders, which is where the name comes from.