A dividend is a portion of a company's profit paid out to its shareholders, usually in cash. It is a way for a company to share its earnings with its owners. In India, dividends are paid directly into the bank account linked to your demat account.
What dividends are
When a company earns profit, its board decides how much to keep for the business, for example to expand, repay debt or build reserves, and how much to distribute. The distributed part is the dividend. Companies with steady profits and fewer growth opportunities often pay higher dividends; fast-growing companies often reinvest most of their profit instead.
How it works in India
Indian companies pay interim dividends during the year, declared by the board, and final dividends after the year ends, approved by shareholders at the annual general meeting. Dividends are often announced as a percentage of face value: a 50% dividend on a ₹10 face value share is ₹5 per share.
Two dates matter. The record date is when the company checks who its shareholders are. The ex-dividend date is the first day the share trades without the right to the upcoming dividend. To receive the dividend, you must hold the shares before the ex-date. Because India settles trades on a T+1 basis, the ex-date and record date are now usually the same day. Dividends are taxable as income in the hands of the investor, and companies deduct tax at source above a threshold.
A simple example
You own 200 shares of a company with a face value of ₹10. It declares a final dividend of 80%, which is ₹8 per share. You receive ₹1,600 (before any tax deducted at source). On the ex-date, the share price usually falls by roughly the dividend amount, since that cash is leaving the company.
Dividend yield
Dividend yield = annual dividend per share ÷ share price × 100. A ₹8 dividend on a ₹400 share is a 2% yield. Yield helps compare income across companies, but a very high yield can be a warning sign if it results from a falling share price or an unsustainable payout.
Why it matters for investors
Dividends provide regular income, can signal financial strength when paid consistently, and add to long-term returns, especially when reinvested.
Other ways companies return money
Dividends are not the only way to reward shareholders. Companies can also buy back their own shares, reducing the number of shares and increasing each remaining shareholder's ownership. Some companies issue bonus shares, which do not pay out cash but convert reserves into extra shares. Each method has different tax and financial effects, so it helps to understand all three when comparing companies.
Dividend consistency
Many investors value companies that have paid dividends steadily for many years, as it can reflect stable profits and disciplined management. The payout history over several years says more than the latest dividend alone.
Common misconceptions
"Dividends are free money." The share price usually drops by about the dividend on the ex-date.
"Higher yield is always better." Very high yields can be unsustainable.
"No dividend means a bad company." Many strong growth companies reinvest profits instead.
Frequently asked questions
How do I receive dividends?
Automatically, into the bank account linked to your demat account.
Are dividends taxed?
Yes, as income at your applicable rate, with tax deducted at source above a threshold.
What is the ex-dividend date?
The first day buyers no longer receive the declared dividend.
Can a company stop paying dividends?
Yes; dividends are not guaranteed.
How to use this on PositoAI
Upcoming and recent dividends, with their key dates, are listed on the Actions page. Use Explore to find companies by dividend yield. PosiStep 7 and PosiStep 9 of the free PosiCourse cover dividends and other corporate actions.
Summary
A dividend is part of a company's profit paid to shareholders. In India, dividends are interim or final, often quoted as a percentage of face value, and paid to those holding shares before the ex-date. They are taxable income. Dividend yield helps compare income, but very high yields and the ex-date price drop both deserve attention.