Dividend
A dividend is a distribution of a portion of a company's profits to its shareholders, declared by the board of directors and paid out of retained earnings or current-year profits.
Dividends can be paid in cash (most common), in the form of additional shares (stock dividend), or occasionally in kind. In India, dividends are declared as a fixed rupee amount per share or as a percentage of the face value of the share. For example, a 500% dividend on a ₹2 face value share means a dividend of ₹10 per share.
The dividend payment process in India follows a structured timeline governed by SEBI regulations. When a company declares a dividend, it sets a record date — the date on which shareholders must be registered to receive the dividend. An ex-dividend date is set two trading days before the record date (for T+2 settlement). Investors who held shares before the ex-dividend date receive the dividend; those who acquired shares on or after the ex-date do not, and typically see the share price fall by approximately the dividend amount on the ex-date.
Historically, dividends in India were tax-free in the hands of shareholders up to ₹10 lakh per year, as companies paid Dividend Distribution Tax (DDT) at the corporate level. The Finance Act of 2020 abolished DDT and made dividends fully taxable as ordinary income in the shareholder's hands. For investors in higher tax brackets (30%), this change materially reduced the post-tax attractiveness of high-dividend-yield stocks, leading some investors to prefer share buybacks — which had more favourable tax treatment for certain categories of shareholders.
For Indian retail investors, dividend history is a useful indicator of financial health and management intent. Companies that have paid uninterrupted dividends for 10–20 years — like ITC, Hindustan Unilever, or Coal India — signal both earnings stability and a shareholder-friendly capital allocation philosophy. However, a sustained dividend payment that is not supported by free cash flow (funded instead by borrowing) is a warning sign, not a virtue.
Special dividends — one-time payments typically funded by exceptional profits, asset sales, or surplus cash — should be distinguished from regular dividends. They should not be used in dividend yield calculations for forecasting future income, as they are non-recurring by nature.