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What is Dividend?
Hello, A dividend is the distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay shareholders in proportion to the profit in the form of a dividend. The disbursed amount is not taken for reinvestment in the business.
As such, the common shareholders of these dividend-paying companies are usually eligible as long as they do not own the stock until the pre-dividend date. Dividends can be paid in cash or additional stock.
If I explain, for example, a dividend is a bonus, an excess, a payment, a share, or a surplus or a periodic return on an original investment. Suppose we have invested Rs. 1,00,000 in a company as a shareholder, and if that company declares a return of Rs. 10,000 on this investment in a particular year, then the return is the dividend on the investment made and Is called dividend payment. 10%.
How do we define a dividend?
Thus dividend is the distribution of value to shareholders, which is usually out of the profits made by the firm in a particular year. Of course, unlike interest payable on deposits or loans, which is a mandatory payment, a dividend is not a mandatory annual payment. Only if the company makes a profit then decides to distribute such profits, declares dividends, shareholders will get returns.
These affect dividend decisions from seven cars.
- Legal hurdles
- Contract shortage
- Internal hiccups
- Growth prospects
- Master idea
- Market ideas
There are some important dates for paying dividends.
1. Announcement date
Every year or half-year or quarterly or on selected special occasions, the firm’s board of directors will meet and recommend the quantum of dividend for the first time. And it becomes the obligation of the company. Therefore the date of declaration is that date. On which the company announces that it will pay dividends.
2. Date of record
This record date is announced by the firm while announcing the dividend payment. And only those shareholders who are on the firm’s record as of this date will receive dividend payments. And so this is the date. On which a list of shareholders receiving dividends is made.
3. Pre-Dividend Date
And it is two business days before the date of the record. If someone were to buy or share the stock on or after this date, he would not be eligible to receive dividends. And so it is that naturally the price of the stock or share generally falls short of the amount of the dividend on or after this date. The Convention is, therefore, that the right of dividend remains with the stock until two business days before the date of record of the holder. And anyone who buys stock on or after the pre-dividend date does not receive a dividend.
4. Payment Date
This is the date on which the dividend payment is checked, and mailed. Since many firms follow an electronic clearing system to deposit dividends in shareholders’ accounts, this payment date is the date on which such ECS instructions are issued to banks. In this ECS method of payment, no paperwork is included – which checks are not required, and are not mailed and huge savings in costs of checkbooks and also in remittances.
Let us examine these various dates with an example.
Suppose our firm XYZ Limited announced on 10 June 2005 that it would pay a dividend of 20% on record to all of its shareholders on June 30, 2006, at the close of business.
The announcement date is – 10 June 2007
The record date is – 30 June 2006
The date of ex-dividend is – 28 June 2006
(When calculating the pre-dividend date of all Saturdays, Sundays and other holidays – the day the stock exchange does not work – it should be excluded)
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